Interest rates live: Mortgage boost as Bank cuts rate for third time this year

On raised GDP expectations, Andrew Bailey explains there’s no major update in overall Bank of England view on the UK’s economic prospects, but that figures pushed higher simply reflects data received over the past few months.

“That’s all on data releases we’ve had. There really isn’t much of a change in our GDP profile – the change is to capture data rather than a change in view, it’s just incorporating changes which aren’t very big,” he said.

“It’s a very small change in the forecast compared to previously,” adds fellow MPC member Clare Lombardelli.

Andrew Bailey says there’s more uncertainty over where interest rates go from here, but he still believes it will ultimately be downwards.

“There are different camps who think where the neutral rate would be. I still think the path is downward for interest rates. But there is genuine uncertainty about the course of that direction,” he says.

“The path has become more uncertain because of what we’re seeing: we’re seeing an upside risk with inflation, but we’ve got a downside risk with the weaker labour market story. We’re balancing that.

“I certainly haven’t changed my view on the direction of the path, it’s more a question of what time it takes.

“My vote was not motivated by concerns over risks for a recession.”

The Bank of England report shows that two votes were needed today to cut the interest rates.

The MPC has nine members; initially four voted in favour of a cut: Andrew Bailey, Sarah Breeden, Swati Dhingra and Dave Ramsden.

Four members – Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill – then preferred to maintain the Bank Rate at 4.25%.

And one member (Alan Taylor) preferred to reduce Bank Rate by 0.5 percentage points, to 3.75%.

The second vote therefore was required, with Mr Taylor then opting for a 0.25 percentage points cut and a 5-4 swing to do so.

Mr Bailey continues: “Inflation returns to 2% in September 2027 in our main projection and remains there thereafter.”

However, the governor highlights risks including global trade tariffs which can impact this – and even warns of the potential to fall below the 2% target.

“Economic growth is subdued and consumption growth may take longer to pick up – that can lead to inflation falling below 2% in the months ahead.

“We will do what it takes to return inflation to 2 per cent target. Based on the outlook, a gradual and careful approach remains appropriate.”

Andrew Bailey, the Bank of England governor, is describing what comes next in the UK economy.

“Higher food inflation has contributed to overall inflation – we expect this to be about 4% in September. There are good reasons to think this rise in headline inflation will not persist,” he says.

“There has been progress on services disinflation. Pay growth, a key component of cost pressures in the UK economy, has declined recently.”

A chart is shown with decreasing private sector regular pay growth, with the expectation that eases further later this year – average pay rises are expected at 3.5-4% on average.

Now, just before the Bank of England press conference, on how interest rates impacts your savings and bills.

For your money in bank accounts, always make sure your savings are in a proper savings account, preferably an easy-access one for “immediate” money you might need which pays as high a rate of interest as possible. Shop around for one if you haven’t already – don’t leave money earning zero interest as inflation means you actually lose out over time.

However, do note that easy access savings accounts are usually variable rates, so they are likely to decrease in line with this BoE interest rate cut.

If your cash is in a fixed term deal or bond account, it won’t impact – you’ll get the same rate you signed up to. If you have a “regular saver” type account, that also shouldn’t change if it’s one with a guaranteed rate, typically allowing you to save a set amount for one year or similar.

For bill repayments on interest, such as credit cards or loans, always check your specific deal to see if rates are variable or based on the variable rate – but ideally pay off credit cards first as they are usually far more costly ways to borrow money.

Right, quickfire reminder of impact.

First of all concerning mortgages. The interest rate change will only directly affect you if you are on a certain type of product. If you have a fixed deal, like a two-year or five-year term, your interest rate remains the same until you change it for a new one.

It also won’t directly affect the mortgage market immediately in terms of what rates are on offer – the banks and building societies use swap rates (basically future predictions of what the interest rate will do) to set their products.

However, if you’re in the process of applying for a mortgage, today could well affect you.

Charles Roe, director of mortgages at UK Finance, explains:

“Today’s rate cut by the Bank of England takes us back to where we were just over two years ago when rates were last at 4 per cent. While most mortgage holders are on fixed-rate deals, the cut will be welcomed by those on tracker or variable rate mortgages. This rate reduction should also help new mortgage applicants, as affordability and overall borrowing costs could improve.”

Despite interest rates coming down, shadow chancellor Sir Mel Stride has pointed the finger at Labour for recent inflation increases.

Mr Stride said: “Rachel Reeves claims credit for interest rate cuts – but rates are coming down to support the weak economy she has created. Inflation has almost doubled on her watch and unemployment is rising.

“Interest rates should be falling faster, but Labour’s Jobs Tax and reckless borrowing have pushed inflation well above target.

“With economists warning Labour have created a £50 billion black hole and the Chancellor refusing to rule out further harmful tax rises, Labour are showing they don’t understand the economy.”

Chancellor Rachel Reeves said the fifth interest rate cut since last year’s election “is welcome news, helping bring down the cost of mortgages and loans for families and businesses.”

Ms Reeves added: “The stability we have brought to the public finances through our Plan for Change has helped make this possible and helped us become the fastest growing economy in the G7 in the first quarter of this year.

“We’re locking in this growth in the long run by investing over £113 billion in infrastructure, securing three major trade deals and embracing the technologies of the future – to drive up wages and improve living standards across the UK.”

While interest rates dropping will be a positive for repayments, a leading finance charity has explained it is still imperative that those needing support due to the cost of living crisis are unlikely to see much benefit.

That’s due to food inflation in particular continuing to surge, with unemployment also rising recently.

Steve Vaid, CEO at Money Advice Trust, the charity that runs National Debtline, said:

“The cut to interest rates will help people on tracker mortgages, and those looking to buy or remortgage. But for many struggling households, the bigger – and more worrying – picture is in the backdrop of this cut. Inflation, driven by increases in food prices, is directly hitting people’s pockets, being felt in the weekly shop and stretching some people’s budgets to breaking point.

“With significant uncertainty in the economy, and unemployment on the rise, struggling households are unlikely to feel much let-up as a result of this cut.

“However, there is help out there. I’d encourage anyone worried about their finances to speak to a debt advice charity, like National Debtline, as early as possible. You can also contact your lender. While it can feel difficult, they are required to offer you support if you’re struggling.”