The Bank of England has cut its base interest rate by 0.25 percentage points, bringing it down to 4.75%. The widely anticipated move, supported by eight of the nine Monetary Policy Committee (MPC) members, marks the latest attempt to balance slowing inflation with economic growth. However, financial experts warn that the impact of this rate cut on consumers and businesses may not be as immediate or straightforward as hoped.
Property Market Optimism Tempered by Structural Challenges
Daniel Austin, CEO and co-founder of ASK Partners, highlighted the potential boost for the property market, stating:
“The Bank of England’s rate cut of 0.25 combined with declining inflation and new fiscal measures, signals a potential shift toward more favourable conditions in the UK property market. House prices have shown consistent month-on-month growth, indicating a possible upward trend into 2025.”
Austin pointed to the Autumn Budget’s £5 billion allocation for new homes and the extension of the 95% loan-to-value mortgage guarantee scheme as measures designed to stimulate the housing market. However, these benefits may be offset by lower stamp duty thresholds and persistent challenges in the rental sector. He noted that private landlords exiting the market due to higher taxes might reallocate funds into alternative property investments, such as property debt, which offer better tax efficiency.
Mortgage Rates Could Rise Despite Base Rate Cut
Contrary to expectations, today’s rate cut may not lead to immediate relief for mortgage borrowers. Peter Stimson, Head of Product at MPowered Mortgages, explained:
“Anyone hoping that the Bank’s decision would instantly open the floodgates to cheaper mortgages is likely to be disappointed. In fact, the mortgage rates offered both to new borrowers and remortgagers could even increase in coming weeks.”
Stimson cited rising swap rates, the wholesale cost of fixed-rate lending, as a key factor. Some lenders have been operating below swap rates to remain competitive, but this is unsustainable. The divergence between fiscal and monetary policy, he added, could make further rate cuts challenging as inflationary pressures persist.
Caution Ahead for Businesses and Investors
Michael McGowan, Managing Director of Foreign Exchange at Bibby Financial Services, suggested that while the rate cut may provide some relief for small businesses, the broader economic landscape remains uncertain:
“Muted expectations of further UK rate cuts into next year, a new US administration, and continuing geopolitical turmoil make for a still uncertain economic outlook. SMEs would be wise to plan for a variety of outcomes, ensuring their plans are based on prudent cost and cashflow management.”
Tom Hopkins, senior portfolio manager at BRI Wealth Management, believes this will likely be the Bank’s final rate cut for 2024, with future reductions dependent on economic data in early 2025.
“Markets have already tempered expectations for rate cuts in 2025, now forecasting two or three rate cuts, down from earlier projections of four or five,” he said.
Broader Economic and Political Pressures
The MPC acknowledged that inflation could climb back above the 2% target by year-end. Combined with increased government borrowing and global economic shifts, including heightened protectionism in the US, these factors could limit the Bank’s ability to lower rates further. For homeowners and prospective buyers, this means navigating a complex and uncertain mortgage landscape, according to Stimson.
In these extraordinary times, both businesses and consumers are being urged to take a cautious but adaptive approach. The path forward, as McGowan and others suggest, will require a blend of ambition and prudence.
