Bank of England Expected to Cut Bank Rate to 3.75% Amid Inflation Decline
The Bank of England is expected to reduce the Bank Rate from 4% to 3.75%, marking the lowest level since February 2023 and the sixth cut since August last year. This anticipated cut follows a recent decline in inflation, with the Consumer Prices Index (CPI) falling to 3.2% in November from 3.6% in October. Although the inflation rate remains above the Bank's 2% target, the decrease supports the case for lowering rates.
However, the Monetary Policy Committee (MPC) vote is unlikely to be unanimous. At the November meeting, four members supported cutting rates while five preferred to hold them steady. Governor Andrew Bailey expressed a preference to wait and observe if inflation continues to decrease further before making changes.
Financial analysts broadly predict a rate cut, with ING's James Smith suggesting this fall greenlights a cut and forecasting two additional cuts in February and April 2024, though not all analysts share this view.
The potential 0.25 percentage point cut could reduce monthly mortgage repayments by approximately £29 for borrowers on tracker rates and about £14 for those on standard variable rates. Fixed-rate mortgage deals are adjusting in line with market expectations. As of 17 December, the average two-year fixed mortgage rate stood at 4.82%, while the average five-year fixed rate was 4.90%, according to Moneyfacts.
Savings rates are expected to decline further, with the current average easy-access savings rate around 2.56%, as reported by Moneyfacts.
