Business News: Bank of England anticipated to lower rates as Federal Reserve opts for no change
The Bank of England is expected to implement its first interest rate cut since 2020 at midday on Thursday, following the Federal Reserve’s indication that it could take similar action next month.
The Federal Reserve decided to keep its benchmark rate in the 5.25%-5.50% range on Wednesday, downgrading its view on inflation and expressing optimism about progress in the right direction.
The message set the stage for a potential rate cut at the next meeting on September 18.
Fed chair Jay Powell mentioned the possibility of a rate cut if the data continued to trend positively.
For the latest money news: Major banks cut rates ahead of BoE announcement on Thursday
The Fed’s announcement paved the way for the Bank of England to take the spotlight the following day.
The decision on interest rates was predicted to be more balanced, with a majority of economists expecting a cut from 5.25% to 5% based on market expectations reported by LSEG.
However, the lack of clear guidance from the Bank left uncertainty about the possibility of a rate cut.
This uncertainty has been attributed in part to the recent UK election and the desire of the monetary policy committee members to maintain their independence.
A rate cut would be welcomed by many borrowers, especially mortgage holders who have felt the impact of the Bank’s efforts to combat inflation since December 2021.
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The Bank of England is expected to signal a cautious approach to future interest rate cuts if the rate-setting committee approves a reduction through a majority vote.
Anticipation of a rate cut throughout the year has led lenders to adjust their rates in accordance with the latest speculations.
One significant aspect of the ongoing cost of living crisis is the additional financial burden faced by borrowers as a result of the Bank’s measures to control inflation.
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For example, mortgage holders have been facing higher monthly payments when entering new fixed-rate deals, while landlords have been passing on increased borrowing costs to tenants.
Rent prices reaching record highs have been worsened by a limited supply of available properties.
Reflecting on the future, Matt Smith, Rightmove’s mortgage expert, stated: “If the Bank Rate is reduced, it will be positive news and hopefully set the stage for further cuts as the economy stabilizes.
“If no rate cut occurs, people should not be overly concerned – as it is likely to happen in September, and mortgage rates are expected to remain stable or potentially decrease slightly – though not as quickly as with a cut.”
