Bank rate reduced to 5% – August 2024
The Bank of England’s Monetary Policy Committee (MPC) has made a significant decision regarding the base rate. As of August 2024, the MPC has voted to reduce the base rate from 5.25% to 5%.
This decision, made by a narrow majority, aims to address current economic conditions and inflation trends. Understanding these changes and their implications is crucial, especially for those with mortgages and loans.
What is the Base Rate?
The base rate, set by the Bank of England, is the interest rate at which banks and other financial institutions can borrow money from the central bank. It influences the interest rates that banks charge on loans and mortgages, as well as the rates offered on savings accounts. Changes in the base rate can affect your monthly payments and savings returns, making it an essential factor in financial planning.
The MPC’s Decision: A Closer Look
- Rate Reduction: The MPC decided to reduce the base rate by 0.25 percentage points, bringing it down to 5%. This decision was made with a 5–4 vote, indicating a close call among the committee members.
- Inflation Target: The primary goal of this decision is to help maintain the inflation target of 2%. Recent data showed that inflation hit the 2% target in May and June, but it is expected to rise to around 2.75% later this year. The MPC is keen to manage these inflationary pressures and prevent them from becoming more persistent.
- Economic Growth: The UK economy has seen a mixed performance. While GDP growth picked up earlier this year, underlying momentum seems weaker. The MPC aims to strike a balance between supporting economic growth and controlling inflation.
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Why the Base Rate Matters
For anyone with a mortgage, loan, or savings account, the base rate is a key figure. Here’s why:
- Mortgages: A lower base rate generally means lower interest rates on mortgages. If you have a variable rate mortgage, your monthly payments might decrease. For those with fixed-rate mortgages, the current rate cut could influence future mortgage rates when the time comes to remortgage.
- Loans and Credit: Similar to mortgages, lower base rates can reduce the cost of borrowing. This could be beneficial if you have personal loans or credit card debt.
- Savings: On the flip side, a lower base rate often means lower interest rates on savings accounts. While this might not be great news for savers, it’s important to consider other savings options that might offer better returns.
The Economic Context
The decision to reduce the base rate comes amidst a backdrop of fluctuating economic indicators:
- Inflation: While the CPI inflation rate was at 2% recently, it is projected to rise slightly. The MPC aims to prevent inflation from staying high for too long, which could erode purchasing power.
- Earnings and Employment: Private sector regular average weekly earnings growth has slowed to 5.6%. At the same time, the labour market shows signs of easing, which could further moderate wage growth and inflation.
- Global Factors: International economic conditions, such as US and Euro-area GDP growth, also play a role. Changes in global trade and commodity prices can influence the domestic economy, impacting everything from import prices to consumer spending.
Conclusion
The recent reduction in the Bank of England’s base rate to 5% reflects the MPC’s efforts to balance inflation control with economic growth.
This decision has far-reaching implications for mortgages, loans, and savings. It’s a reminder of the importance of staying informed and seeking advice tailored to your financial situation.
At Kerr & Watson, we understand that changes in the base rate can be confusing and impact your financial plans. Whether you’re looking to buy a home or refinance your mortgage, we’re here to help. Our expert advisors can provide personalised advice to help you navigate these changes and make informed decisions.
Contact us today to discuss how the base rate change might affect you and explore the best options for your financial future.
Read more: Bank rate maintained at 5.25% – August 2024
