A Bank of England interest rate cut is highly likely following the recent economic downturn in the UK for the second consecutive month. Concerns over potential tax increases in the upcoming Budget led to reduced consumer and business spending, resulting in a 0.1% decline in economic output in October, contrary to expectations of growth. This decline follows a similar contraction in September, marking a period of stagnation or decline in the UK economy since June.
With the latest economic data indicating a continued slowdown, experts are increasingly confident that the Bank of England will lower its base rate from the current 4% at the upcoming Monetary Policy Committee meeting. Neil Wilson from Saxo Markets predicts not only a rate cut next week but also anticipates further reductions in 2026. Lindsay James from Quilter also views a rate cut next week as increasingly probable.
Economist Philip Shaw of Investec Economics foresees Bank of England Governor Andrew Bailey shifting towards a rate reduction stance at the upcoming meeting, potentially resulting in a narrow majority vote in favor of a cut. TUC General Secretary Paul Nowak emphasizes the need for interest rate cuts to address the financial strain on families and businesses caused by the ongoing economic challenges.
For borrowers, a projected rate cut to 3.75% would offer additional advantages, especially in the mortgage sector. Lenders have already initiated a rate competition on fixed-rate mortgage deals in anticipation of a rate cut, with several banks reducing their rates. Variable rate mortgage holders stand to benefit from the rate cut, potentially leading to savings on monthly repayments.
On the other hand, savers are advised to act promptly to secure the best deposit rates amidst expectations of rate reductions. Fixed-term savings accounts are recommended to lock in current rates before any potential cuts take effect. Savers are encouraged to diversify their savings across different account types for flexibility and long-term stability while considering the impact of any changes in ISA allowances. Reviewing and comparing financial products to align with individual needs is essential in the current economic climate.