The Bank of England has cut interest rates by 0.25 points to 4.75 per cent, in a move widely expected by investors.
The reduction is seen favourably by industry experts but there are worries about rising inflation as a result of UK Budget fiscal policies and the US election. It is uncertain how soon inflation can be brought under control and how this would impact the overall economy, so many predict slower, more gradual rate reduction in the future.
Hymans Robertson head of capital markets Chris Arcari says: “Despite the larger than expected rise in net spending unveiled in the autumn budget, and the OBR’s forecast of higher near-term inflation as a result, the Bank of England (BoE) has today lowered rates by 0.25 per cent p.a. – only the second reduction this year. Headline inflation came in at a below-target pace of 1.7 per cent year-on-year in September and while still elevated, service sector and wage inflation are coming down more quickly than the BoE anticipated in their previous monetary policy report.
“This opened the door for the BoE to make today’s change and lower interest rates, while still maintaining a relatively restrictive policy stance. The front-loaded nature of the spending and the OBR’s forecast impact on near-term growth and inflation has seen the market shift to expect a slower pace of rate cuts from the Bank of England.”
Standard Life managing director for retail direct Dean Butler says: “A lot has happened since interest rates were held in September with weeks of pre-Budget speculation culminating in the Chancellor’s speech last week. Now, the Bank of England’s decision to bring the base interest rate below 5 per cent could bring some Autumn positivity for people with housing costs and unsecured debt like credit card balances. However, as inflation is forecast to rise again through the winter, further cuts are likely to be incremental and the odds of a December cut are lengthening.
“Savers continue to have the opportunity to benefit from a higher interest environment with rates on best-buy instant access cash savings accounts hovering just below 5 per cent and some fixed deals considerably higher. It’s a good idea for anyone with savings to shop around as rates vary widely across the market – in addition, while not always worth the switch by themselves, some high street banks are offering extra rewards for switching.
“It’s worth those who have emergency ‘rainy day’ savings covered considering an investment product like a stocks and shares ISA however investments can lose as well as gain value. If you’re able to take a longer-term view, saving into your pension has the potential to outpace inflation over a number of years due to the power of compound investment growth. Pensions are also incredibly tax efficient – last week, the Chancellor chose to leave both pensions tax relief and tax free cash rules alone.”
Mercer Global Head of Macro and Dynamic Asset Allocation Rupert Watson says: “We expect rate cuts are likely to continue however the central bank will want to take account of the fiscal position following the budget and may adjust their pace accordingly.
“The BoE will also want to consider the impact of the election of a new US President for the domestic economy. The overall picture in the UK is one of slow growth with a slight boost in 2025, but with inflation coming down to the 2 per cent target the BoE has maintained its gradual easing stance.”
XPS Group chief investment officer Simeon Willis says: “Given the boost to public spending and upwards pressure on inflation resulting from Rachel Reeves’ Autumn budget, the markets had factored in a less rapid easing of the Bank rate. This MPC announcement is in keeping with that revised expectation, although as is often the case, it is the longer-term rate of easing that is of greatest interest. Movements of 0.25 per cent in themselves are relatively inconsequential. The path of expected rate reductions likely remains cautious particularly given the OBR’s inflation outlook for 2025 being above target.”
LV= chief investment officer Adam Ruddle says: “With the headline inflation rate at 1.7 per cent and the persistent services inflation component falling below 5 per cent for the first time since May 2022, the Bank of England had sufficient latitude to continue cutting interest rates.
“However, the UK Budget is expected to increase inflation through fiscal expansion and increased business taxes that will likely be passed on to consumers. Before the recent Budget and the US presidential election – where tariffs are a driver of inflation – the market had anticipated five rate cuts over 2025, but this may fall to three or four because of inflationary pressures.
“Lower rates will be welcome news for the 60 per cent of consumers who hold some form of debt, particularly mortgage holders, where according to LV= research, one in five are worried about their repayments.”
