The Bank of England is expected to cut interest rates to 4% on Thursday, down from 4.25%. If confirmed, this would mark the fifth cut since August 2024 and bring the base rate to its lowest since March 2023.
A lower base rate reduces borrowing costs, easing monthly mortgage payments for some homeowners. Moneyfacts estimates that someone with a £250,000 standard variable rate mortgage over 25 years could see repayments drop by £40 per month. However, it also means a lower return for savers, with average savings rates falling from 3.9% a year ago to 3.5%.
Despite inflation climbing to 3.6% in the year to June – above the Bank’s 2% target – slowing wage growth and a softening jobs market may justify a rate cut. Job vacancies have fallen, payroll numbers are down, and unemployment has increased. Average earnings growth (excluding bonuses) eased to 5% between March and May.
Meanwhile, the UK economy failed to grow in April and May, raising concerns about stagnation. GDP figures for the second quarter, due next week, will show whether growth resumed between April and June. The economy expanded by 0.7% in the first quarter.
Alongside the rate decision, the Bank will publish updated economic forecasts. With a widening spending gap and weak growth, the Government may be pressured to announce tax rises in the Autumn Budget to help balance the books.
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