Some people could see a major change to their finances next week(Image: Getty Images)
People all across the UK who are currently in some form of repayment plan with a mortgage or loan may soon be in for good news, according to some economic experts. The Bank of England is expected to cut interest rates to their lowest point in nearly three years, providing a “festive news” boost for borrowers, according to economists.
The Bank’s Monetary Policy Committee (MPC) is widely anticipated to lower interest rates from 4% to 3.75% this Thursday. This move would reduce borrowing costs to the lowest level since early February 2023.
The forthcoming decision from policymakers, marking the final one for the year, coincides with economic data indicating a slowdown in UK inflation. Consumer Prices Index (CPI) inflation dipped to a four-month low of 3.6% in October as gas and electricity prices increased at a slower pace compared to the previous year.
Economists believe that declining inflation, coupled with other indicators of an economic slowdown, will prompt policymakers to opt for a rate cut next week. Laith Khalaf, head of investment analysis at AJ Bell, suggested a rate cut would be “festive news for borrowers of all stripes”.
He added: “The Bank of England will be focused on hitting the 2% inflation target here in the UK, and for the time being that means loosening policy. But we shouldn’t expect a cascade of rate cuts next year.
“Previous monetary easing will still be working through the system and greasing the wheels, but fresh stimulus could be in short supply throughout 2026.” The upcoming decision also comes in the wake of last month’s autumn Budget, which some economists argued was less likely to temper inflation than they had anticipated.
There had been speculation before the Budget that the Government might opt to increase income tax rates, which could have applied downward pressure on inflation – but that didn’t materialise.” Philip Shaw, an economist at Investec, said the tax measures unveiled by Chancellor Rachel Reeves “do not begin to bite until 2028-29 and therefore are of relatively little significance in the current interest rate debate.”
He added: “That said, we would note that the overall fiscal stance is relevant thanks to previous Budget measures weighing on the economy, notably the continued freeze in income tax thresholds.” Andrew Goodwin, chief UK economist at Oxford Economics, said: “A rate cut is likely, though it is a closer call than markets think it is.
“The committee is deeply divided and four out of nine officials are unlikely to vote for the cut.” He said the vote will “hinge solely” on the Bank’s Governor, Andrew Bailey, who has suggested he believes the inflation outlook is improving.
The US Federal Reserve voted to cut interest rates this week to the lowest level since 2020, but its chair Jerome Powell said the central bank would be carefully assessing economic data over the months ahead.
What will happen to me if interest rates go down?
A cut in interest rates will have a direct effect on the finances of those who are currently paying back money on a loan or a mortgage with a variable interest rate. However, those with a fixed interest rate will most likely not be affected, depending on the length of their contract agreement.
If the bank does decide to cut interest rates, some people may notice their repayment costs go down. If you’re unsure of how a change in interest rates could affect your specific mortgage, a variety of mortgage calculators are available from banks and other financial websites.