A Bank of England rate reduction appears highly likely next week following the UK economy’s consecutive contraction for the second month in a row. Concerns over potential tax increases in the upcoming Budget by Chancellor Rachel Reeves dampened consumer and business spending, leading to a 0.1% decline in economic output in October, contrary to expectations of growth. This decline, following a similar contraction in September, marks a stagnant or negative growth trend since June.
In light of this economic data, experts anticipate a rate cut from the Bank of England’s current 4% base rate at the Monetary Policy Committee meeting next week. Neil Wilson, UK investment strategist at Saxo Markets, confidently stated that a rate cut is inevitable, projecting further cuts in the coming year. Lindsay James from Quilter echoed the sentiment, deeming a rate reduction increasingly probable.
Economist Philip Shaw of Investec Economics predicted that Bank of England Governor Andrew Bailey is likely to change his stance and vote for a base rate reduction at the upcoming meeting, potentially leading to a narrow majority in favor of a cut.
TUC General Secretary Paul Nowak emphasized the necessity for the Bank of England to acknowledge the financial strain on households and businesses, urging for additional interest rate cuts to support economic recovery.
For borrowers, a projected rate cut to 3.75% would offer increased affordability for mortgage and other loan repayments. Lenders have already initiated a rate competition on fixed-rate mortgage products in anticipation of the rate decrease. Borrowers with variable rate mortgages, especially those on standard variable rate or discounted deals, stand to benefit from the potential rate cut.
In contrast, savers are advised to take proactive measures to secure favorable savings rates amidst expectations of a base rate reduction. Fixed-term accounts are recommended to lock in higher rates before any potential cuts come into effect. Experts suggest diversifying savings across different account types to balance flexibility and stability, considering potential ISA allowance changes and exploring various product options to meet individual financial needs.