Chris Arcari, Head of Capital Markets, Hymans Robertson says: “As predicted the Bank of England (BoE) have today announced a 0.25 % pa cut, with the likelihood of furthers cuts to follow, taking the base rate to 4.0% pa by year-end. The BoE is going to have to walk a tightrope in the year ahead. The economy is stagnating, and the announced National Insurance (NI) increase has driven growth and inflation in opposite directions: employment intentions have fallen while expected price growth and services output prices have risen, as employers cut back recruitment or look to pass on the NI increase via prices. Should weaker employment growth result in dwindling domestic demand and a larger output gap, reducing inflation pressure, we expect the BoE to cut rates more quickly. However, if inflation pressures persist, despite the weak growth backdrop, the central bank is likely to stay cautious.”
Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group, said: “The Bank of England’s decision to move ahead with a 0.25% cut reflects fears of slower than expected growth and will come as some relief to borrowers, including mortgage holders on a variable rate or approaching the end of a fixed term. However, with inflation proving more stubborn than hoped, further reductions are likely to be gradual and there’s a chance we’ll end 2025 with rates still significantly higher than we became accustomed to pre-2022. It’s a mixed bag for savers with best-buy deals remaining competitive, but with inflation creeping up on any potential gains. It’s particularly important that people shop around for the best rate to keep their returns above inflation as there are huge variations in offerings across the market. For those with a greater appetite for risk, investment-based products such as Stocks & Shares ISAs offer the chance of greater returns. If you’re able to take a long-term view, topping up your pension offers the same investment potential as well as tax efficiency. If you can, it’s good to take a diversified approach and give yourself as many options as possible – particularly in a changing economic environment.
Rupert Watson, Global Head of Macro and Dynamic Asset Allocation at Mercer, said: “The Bank of England has continued its approach from last year by cutting rates again by 0.25%. The move comes against a backdrop of the falling value of sterling and the gilt fluctuation seen earlier in the year. The UK economy faces persistent challenges of weaker growth, elevated wages, and sticky inflation. This latest move suggests BoE thinks rates do not need to be so high to meet its inflation target and can now begin to come down. We expect that there will be further rate cuts later in the year and next.
Chris Helyar, Partner in LCP’s investment team commented: “With the economy seemingly flat on its back in the final months of 2024 and business confidence at a low ebb, the MPC probably felt it had little option but to apply a dose of monetary medicine. But looking a little further out, it’s fair to say, decision making is likely to get complicated. For a variety of reasons, such as rising energy costs and the potential pass through to consumer prices of Chancellor Reeves’ employer National Insurance hike, inflation could be rising and well above the 2% target again soon. The combination of no / slow growth and pricing pressures would make for a head scratching monetary conundrum. And that’s before the MPC considers the impact of possible US trade tariffs. Tariffs applied by the US to other countries’ products could see those goods redirected to the UK affecting domestic producers. And while the UK has escaped President Trump’s wrath so far, tariffs levied on UK exports to the US would raise their price for American consumers, likely reducing demand for them. Whether direct or indirect in their effect, tariffs would act as a deadweight on UK plc.”
Sarah Pennells, Consumer Finance Specialist at Royal London comments: “The Bank of England’s decision to reduce the base rate to 4.5% will be welcome news to both borrowers with a variable rate mortgage and prospective buyers. While the cost of living crisis has receded, higher bills – including housing costs – continue to cause pain. Our latest research shows that one in five people don’t manage to get to the end of the month without going overdrawn, either every month or from time to time, rising to over one in four mortgage borrowers (27%) and three in ten (30%) renters. Fewer than half of UK adults say they have any money left over at the end of the month once they’ve paid their bills. The vast majority of mortgage borrowers are on a fixed rate mortgage, and we know that other factors, not just the base rate, have an impact on the competitiveness of fixed rate deals. However, those who are on a variable rate mortgage will benefit from a reduction in their monthly mortgage payments. According to our research mortgage borrowers only saw a reduction of £4 a month in housing costs on average, compared to a year earlier, with almost four in ten telling us they were spending more.”
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