A Bank of England rate cut is highly probable next week as the UK economy contracted for the second consecutive month, leading to concerns among households and businesses about potential tax increases in the upcoming Budget. Recent data from the Office for National Statistics revealed a 0.1% decline in the economy in October, contrary to expectations of growth, following a similar contraction in September. This marks a four-month period of stagnation or decline in the UK economy since June.
Economists are increasingly convinced that the Bank of England will lower its base rate of 4% at the upcoming Monetary Policy Committee meeting. Neil Wilson, a UK investment strategist at Saxo Markets, stated that a rate cut next week is almost certain, with expectations of more cuts in the future. Lindsay James, an investment strategist at Quilter, also indicated that a rate cut next week is becoming more likely.
Philip Shaw from Investec Economics predicted that Bank of England Governor Andrew Bailey may shift his vote towards a rate reduction at the upcoming meeting, potentially resulting in a narrow majority in favor of a cut. TUC General Secretary Paul Nowak urged the Bank of England to acknowledge the financial strain on families and businesses and called for further interest rate cuts next week.
For borrowers, a rate cut to an anticipated 3.75% would bring added benefits, particularly for mortgage holders. Lenders have already begun a rate war on new fixed-rate mortgage deals in anticipation of the rate reduction. Borrowers with variable rate mortgages, including those on standard variable rates or discounted deals, would also see savings. Broker L&C Mortgages estimated that a base rate cut to 3.75% could save borrowers on standard variable rates up to £32 per month on a £200,000 mortgage.
In contrast, savers are advised to act swiftly to secure the best deposit rates, as potential base rate cuts could lead to the withdrawal of competitive offers. Experts suggest considering fixed-rate accounts for stability and diversifying funds across different types of accounts to maximize returns. It is also recommended to review ISA allowances to take full advantage of current limits before any changes come into effect.
