A Bank of England rate cut is highly likely next week following the UK economy’s consecutive contraction for the second month, according to experts. Concerns over potential tax increases in the upcoming Budget by Chancellor Rachel Reeves have dampened both household and business expenditures, leading to a 0.1% shrink in the economy in October, contrary to the expected growth. This decline follows a similar contraction of 0.1% in September, marking the fourth consecutive month without economic growth.
Anticipation for a rate reduction was already prevalent among economists regarding the Bank of England’s current 4% base rate ahead of the Monetary Policy Committee’s meeting next Thursday. The recent economic data has further reinforced the likelihood of a rate cut. Neil Wilson, UK investment strategist at Saxo Markets, confidently stated that a rate reduction next week is a certainty, also forecasting additional cuts in the coming year. Lindsay James from Quilter expressed increasing certainty about a rate cut in the upcoming week.
Investec Economics’ Philip Shaw predicted that Bank of England Governor Andrew Bailey would pivot towards a base rate reduction at the upcoming meeting, resulting in a narrow majority in favor of a cut. TUC General Secretary Paul Nowak emphasized the necessity for the Bank of England to acknowledge the financial strain on families and businesses due to the living standards crisis and urged for further interest rate cuts.
Regarding the impact on borrowers, a projected rate cut to 3.75% is expected to benefit mortgage and other borrowers significantly. Lenders have already initiated a rate war on new fixed-rate mortgage deals in anticipation of the reduction. Variable rate mortgage holders, particularly those on standard variable rates or discounted/tracker deals, stand to gain from a rate cut. Analysis from L&C Mortgages indicated potential savings for borrowers with varying loan amounts.
For savers, the prevailing expectation of a rate cut has prompted recommendations for swift action to secure the best deposit rates before potential changes. Experts advised considering fixed-term accounts to lock in favorable rates, especially in light of potential rate decreases. The advice included diversifying savings across different account types for flexibility and stability, with a reminder to review ISA allowances and consider current limits before any policy changes take effect.