Some experts are highly confident that the Bank of England will implement a rate cut in the upcoming week following the UK economy’s second consecutive month of contraction. Concerns over potential tax increases in the upcoming Budget by Chancellor Rachel Reeves have led to a decline in spending and overall economic output. Recent data from the Office for National Statistics confirmed a 0.1% shrinkage in the economy during October, contrary to expectations of growth for that period. This contraction follows a similar decline of 0.1% in September, marking a continuous stagnation or decline in the UK economy since June.
The likelihood of a rate reduction by the Bank of England from the current 4% base rate has increased significantly, with economists now more certain about the impending decision. Neil Wilson, a UK investment strategist at Saxo Markets, confidently stated that a rate cut next week is almost certain, with further cuts anticipated in 2026. Lindsay James, an investment strategist at asset manager Quilter, echoed this sentiment, stating that a rate cut in the upcoming week is becoming increasingly probable.
Philip Shaw, from Investec Economics, predicts that Bank of England Governor Andrew Bailey will vote for a base rate reduction at the next meeting of the Monetary Policy Committee, resulting in a narrow majority in favor of the cut.
TUC General Secretary Paul Nowak emphasized the importance of addressing the financial strain on families and businesses by advocating for further interest rate cuts by the Bank of England.
Impact on Borrowers:
An expected rate cut to 3.75% would provide additional benefits to mortgage holders and other borrowers. Lenders have already intensified competition by lowering rates on fixed-rate mortgage deals in anticipation of the rate reduction. Notable banks like NatWest and Barclays have already reduced the cost of fixed-rate mortgages for new clients.
Variable rate mortgage holders stand to gain from a rate cut next week, especially those on standard variable rates (SVRs) or discounted/tracker deals, subject to the rate cut being passed on by lenders. According to L&C Mortgages, an average borrower with an SVR mortgage of £100,000 could save £16 per month on repayments with a base rate cut to 3.75%.
However, individuals opting for new mortgages or remortgaging often choose fixed-rate options, which are influenced by base rates indirectly through swap rates used by lenders to determine costs.
Impact on Savers:
Savers are advised to take action promptly amid concerns that attractive deposit rates may be withdrawn soon. Experts suggest considering fixed-term accounts to secure favorable rates before potential cuts are implemented.
Reviewing ISA allowances is recommended, with the current £20,000 limit still applicable. It is advised to compare products and ensure they align with individual financial needs.