(qlmbusinessnews.com Mon. 11th Nov, 2024) London, UK —
Bank of England Cuts Interest Rates Amid Inflation Concerns Following Budget.
The Bank of England has reduced the UK interest rate to 4.75% from 5%, as widely anticipated, but has warned that further cuts may not come as quickly due to potential inflationary pressures stemming from the recent Budget. The Budget introduced significant spending measures, including a cap on bus fares and increased VAT on private school fees, which analysts suggest may drive up prices in the coming months.
Andrew Bailey, Governor of the Bank of England, cautioned that while rates are likely to “continue to fall gradually,” rapid cuts are unlikely. “There are many risks both globally and domestically that call for a gradual approach,” he told reporters.
With this approach, investors now believe that additional cuts this year are improbable, with rates likely to hold steady in December. Economists are now forecasting a slower decline, with interest rates potentially reaching 3.5% by early 2026, rather than the previously projected 3%.
Inflation, which had briefly fallen below the Bank’s 2% target in September, is now expected to see an uptick after recent increases in energy costs. The Bank’s Monetary Policy Committee voted overwhelmingly, 8-1, in favour of the rate cut, with the dissenting vote citing Budget-induced inflation as a concern.
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, commented, “With rising government borrowing and increases in the national living wage, the Bank is cautious about cutting rates further to prevent inflation’s resurgence.” While the slower pace of cuts may benefit savers and pension annuitants, mortgage borrowers could feel the pinch. Although some mortgage holders with variable-rate deals may see immediate relief in monthly repayments, average mortgage rates remain elevated, with two-year fixed rates at 5.4%.
For savers, banks may lower the returns offered, with the average easy-access account currently yielding around 3% annually. Despite the relief offered by this latest rate cut, Chancellor Rachel Reeves acknowledged the ongoing challenges for households, noting the government’s commitment to “long-term solutions.” Meanwhile, Shadow Chancellor Mel Stride credited the rate cut as beneficial for homeowners, though warned that inflation pressures are expected to rise.
With the Budget proposing £28 billion in additional borrowing and £40 billion in tax-raising measures, the economic landscape remains delicate. The Bank has revised its growth forecasts for 2025, suggesting a decline in unemployment rates from 4.7% to 4.1%.
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