Bank of England Cuts Interest Rates for the First Time in Years

The Bank of England has announced a cut in its base interest rate, bringing it down to 5%. This marks the first reduction since March 2020, during the initial stages of the pandemic when rates were dropped to stimulate the economy.

This latest decision follows a series of rate hikes, which had increased the interest rate to a 16-year high of 5.25% just last month. The cut is expected to impact various aspects of borrowing and saving, particularly for mortgages and loan rates.

Following the announcement, Santander and Coventry building society have already stated they will lower their mortgage rates starting next month. These changes might bring a sigh of relief to borrowers, especially those on variable-rate mortgages.

Mortgage rates have been fluctuating this year based on market predictions, and many believe Thursday’s cut may lead to further reductions in the coming weeks. Experts suggest that some lenders are willing to lower rates to capture a larger share of the market.

However, the Bank’s governor, Andrew Bailey, cautioned against excessive expectations of further cuts, underlying the importance of controlling inflation. Even with the base rate cut, it seems unlikely that mortgage costs will drastically decrease.

Savings account rates usually respond to moves made by the Bank, so savers may find their returns adjusting downwards as these changes take effect. Currently, the average one-year savings bond returns are expected to drop, reflecting the reduced base rate.

Many personal loans come with fixed rates, meaning existing borrowers won’t feel the pinch or the perk of the cut immediately. New loans may see a slight drop in pricing, but significant reductions aren’t anticipated.

Credit card rates may not be directly affected, as they’re typically based on different criteria, leaving many consumers uncertain of how much they might benefit.