Money blog: Major boost for mortgage holders as Bank of England finally cuts interest rate (2024)

At 12.30pm today, the Monetary Policy Committee (MPC) will hold a news conference on their decision to cut the interest rate.

You'll be able to follow the conference live on our blog - and watch in the stream above.

The Bank of England has cautioned that interest rates will fall more gradually than they rose.

Shortly after cutting the rate, governor Andrew Bailey said policymakers "need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much".

He added: "Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country."

The base interest rate rose quickly from 0.1% in late 2021 to a peak of 5.25% last summer, before remaining there for 12 months.

With many mortgage lenders having already priced in a cut for several months, a leading estate agent has suggested the biggest impact of today's cut might be on housing market sentiment.

Simon Gammon, managing partner of Knight Frank Finance, said:"Today's decision will have a limited impact on mortgage rates but it will be transformative for sentiment.

"There is a meaningful group of buyers that put off moving home in the wake of the mini-budget that can now push on with confidence. The Bank of England has been particularly cautious, so by opting to cut the base rate it has sent a real statement that inflation is largely beaten.

"The lenders have already cut margins to the bone, so this cut was pretty much priced into fixed rates.

"That said, we've seen that the larger lenders are happy to take a hit to profits to gain market share, so we may well see another round of marginal cuts in the days ahead."

We've had a reaction from Chancellor Rachel Reeves to the cut in the base rate.

In a statement, she says: "While today's cut in interest rates will be welcome news, millions of families are still facing higher mortgage rates after the mini-budget."

The disastrous mini-budget in September 2022 under Liz Truss's shortlived administration prompted the pound to plummet and inflation to soar, triggering mortgage mayhem.

Ms Reeves continued: "That is why this government is taking the difficult decisions now to fix the foundations of our economy after years of low growth, so we can rebuild Britain and make every part of our country better off."

On the other side of the political aisle, shadow chancellor Jeremy Hunt is trying to present the rates cut as the outcome of his party's prudent management of the economy.

He said: "Today's cut will be welcome news for millions of homeowners and shows that Labour inherited a stronger economy which was on the right track.

"In government, we took difficult decisions that cut inflation from 11.1% to the Bank's target 2% paving the way for lower rates.

"Our concern is that further substantive cuts may now take longer because of inflation-busting public sector pay rises rushed through by the chancellor ahead of the summer."

The Monetary Policy Committee (MPC) voted 5-4 in favour of cutting the interest rate to 5% flat, with governor Andrew Bailey the deciding factor.

The last MPC meeting saw members voting 7-2 in favour of holding the rate.

Our business presenter Ian King says the minutes from the meeting "note earnings growth fell to 5.6% in the three months to May and services inflation coming down".

"So the Bank satisfied there that inflationary pressures are starting to ease," he adds.

However, "I think what you can take from the minutes [and the voting split] might be that this will be the last interest rate cut for a while".

"The market is pricing in another rate cut between now and the end of the year, but it looks like this decision was pretty finely balanced."

It has been a long time coming.

After two years during which the Bank of England raised interest rates at nearly every meeting - and another year in which those rates sat at what is, for many households and businesses, a painfully high level - today they have finally been cut.

So this is a watershed moment - a critical turning point for the UK economy.

Interest rates are the Bank's main tool for trying to control inflation.

Higher rates deter people from borrowing and encourage them to save - hence less money gets spent out there in the economy and retailers become less confident about setting high prices.

High interest rates are, to put it more bluntly, a form of economic pain.

And the Bank thinks that even at 5%, where they are now after today's cut, they are still at a painful level - or, as they would put it, "in restrictive territory".

This is a large part of the explanation for why unemployment is higher, house prices are lower and for why many households are still struggling - even though the annual rate of inflation is now back to the Bank's target rate of 2%.

So the decision to cut rates will start, gradually, to reduce that pressure - that pain.

Indeed, in some senses the pain is already reducing somewhat: mortgage providers, anticipating lower Bank of England rates, have already begun to reduce fixed rate mortgage rates.

Today, those with floating rate mortgages will see an instant reduction in their costs.

The big question now is: what next? First things first, don't expect those borrowing costs to come down as quickly as they went up. Markets think there might be one more cut this year, and that borrowing costs will come down quite gradually.

Second, few people inside the Bank expect borrowing costs to come down to the levels they were at back in 2021, when they were sitting at a historic low of 0.1%.

Instead, they seem moderately happy with market expectations that rates will drop only to 3.5% over the next three years.

Are interest rates still in "restrictive territory" then? That's a question no-one at the Bank wants to answer.

The Bank's decision today wasn't exactly a surprise: financial markets had put the probability of a rate cut today at over 60%.

Even so, it was perhaps the most finely balanced decision in a long time.

Far from being a unanimous verdict, four of the nine members of the Monetary Policy Committee actually voted to leave interest rates at 5.25%. This wasn't, in other words, a slam dunk.

And the documents released alongside the decision were chock full of provisos: rates would need to "remain restrictive for sufficiently long until the risks to inflation retuning sustainably to the 2% target in the medium term had dissipated further".

In other words: we're not out of the woods yet. The Bank is still paranoid about inflation. Then again, it always was. And today it finally cut interest rates - and signalled there will be more to come in the coming months.

By Ed Conway, economics and data editor

The Bank of England has cut interest rates by a quarter percentage point to 5%.

The Bank's nine-member Monetary Policy Committee voted 5-4 to bring borrowing costs down, bringing to an end the joint-longest plateau for rates since the Bank was granted independence in 1997.

Lower interest rates will instantly be reflected in many savings accounts and floating rate mortgages, though those selling fixed rate mortgages had long ago reflected the likelihood of lower rates.

The Bank's decision came after the consumer price index rate of inflation dropped to 2% this summer - the MPC's target.

However, updated forecasts from the Bank's staff suggests inflation will bounce back in the coming months, rising to around 2.75% by the end of the year.

It is a watershed moment, since many economists expect the Bank to continue cutting borrowing costs in the coming months.

However, Governor Andrew Bailey warned that consumers should not expect the Bank to cut rates as rapidly as it had raised them (14 successive increases between late 2021 and mid-2023).

"Inflationary pressures have eased enough that we've been able to cut interest rates today," he said.

"But we need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much. Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country."

The Bank sharply upgraded its forecast for economic growth this year, from 0.5% to 1.5%.

It expects the economy to expand by 0.7% in the second quarter, followed by 0.4% the quarter after that.

However, it said it had yet to incorporate the impact of any measures introduced by Rachel Reeves into its forecasts.

The nine MPC members were briefed on the new chancellor's latest fiscal announcement earlier this week - about a "black hole" in the public finances and various measures to fill it.

That announcement included a 5.5% pay increase for public sector workers.

Bank insiders say that deal is unlikely to stoke noticeable inflationary pressure, but it will do a full audit of the plans after the budget in October.

Annual house price growth has picked up to the fastest rate since December 2022.

UK house prices rose 0.3% month-on-month in July, Nationwide Building Society said.

This resulted in a slight acceleration in the annual rate of house price growth from 1.5% in June, to 2.1% in July - the fastest pace since December 2022.

Across the UK, the average house price in July was £266,334.

Robert Gardner, Nationwide's chief economist, said housing market activity has been holding relatively steady in recent months with the number of mortgages approved for house purchase at around 60,000 per month.

"While this is still (around) 10% below the level prevailing before the pandemic struck, it is still a respectable pace given the higher interest rate environment," he said.

GPs across England have voted overwhelmingly in favour of taking industrial action as part of a dispute over funding and contract changes, the British Medical Association (BMA) has said.

More than 8,500 GPs in England took part in the ballot and 98.3% voted in favour of taking partin one or more examples of collective action.

This means, from today, the BMA will encourage practices to choose from a list of 10 actions, andpractices can choose to implement as few or as many as they think appropriate.

This disruption could potentially see GPs limit the number of patients they will see each day to 25.

They could also choose to stop performing work they are not formally contracted to do.

The last time GPs took collective action was in 1964 when family doctors collectively handed in undated resignations to the Wilson government.

Earlier this week, Dr Katie Bramall-Stainer, chairwoman of the BMA's England General Practitioners Committee, said this was not a strike but "collective, premeditated, disruptive action".

"If it's done effectively, it's done collectively and it's done well, it will bring the NHS to a standstill very quickly - but not for patients, (for) all the NHS admin, the policymakers who have put in place these decisions that aren't helping patients," she said.

What is the dispute about?

Dr Bramall-Stainer said she wanted to talk to the government about a Family Doctor Charter 2025, 60 years on from the original.

"The GP model is why the NHS has lasted as long as it has done and when you try and break the GP model, you break the gatekeeper, and when you break the gatekeeper, you break the NHS," she said. "I think that is what we're seeing on a macro level."

Dr Bramall-Stainer said there had been "three successive contracts impositions over the past three years".

The new GP service contract will see services given a 1.9% funding increase for 2024-25 - which the BMA said means many surgeries will struggle to stay financially viable.

A Department of Health and Social Care spokesperson said: "The health and social care secretary has met with the chair of the BMA's GP committee to discuss their priorities ahead of their ballot closing on 29 July.

"However, it is important we plan for all contingencies, in every eventuality, to keep patients safe."

By Daniel Binns, business reporter

The FTSE 100 is up slightly this morning - by 0.3% - after a string of positive corporate updates - and as investors brace themselves for the Bank of England's decision on interest rates at noon.

Rolls-Royce soared more than 10% to an all-time high after upgrading its forecasts for 2024 and announcing it would restart its dividend.

The manufacturer is now predicting an underlying operating profit of up to £2.3bn for the year.

Clothes retailer Next is also up more than 8% after it posted better-than-expected sales despite a wet start to the summer.

Barclays has inched upwards by almost 1% after it raised its full-year outlook while revealing an 8% drop in half-year profits. However, it also announced a £750m share buyback programme.

But it's bad news for Wizz Air, which is down more than 14% on the FTSE 250.

The low-cost carrier reported a 44% drop in its first-quarter operating profit and cut its annual forecast earlier on Thursday.

It comes after the airline was named the worst for customer service by consumer group Which? in a report yesterday - an accusation it strongly denied.

Asset management firm Schroders Plc has also dropped more than 6% on the FTSE 100.

The slump comes after it posted an 8% fall in first-half profits.

On the currency markets, this morning £1 buys $1.28 US or €1.18.

Meanwhile, as tensions in the Middle East continue to simmer, the benchmark price of a barrel of Brent Crude has climbed almost 1% to just over $81 (£63).