THE Bank of England (BoE) should cut rates to 3.75% this month and deliver an “early Christmas present for borrowers”, financial and mortgage experts have said, adding that a reduction would also help boost a sluggish economy and sentiment that has been left reeling after the Budget.
Interest rates were left at 4% by just one vote at November’s Monetary Policy Committee (MPC) meeting. The next decision is due on December 18th, just a week before Christmas, with many expecting BoE governor Andrew Bailey to announce a reduction in Bank Rate.
Britain’s economy is spluttering along with inflation currently at 3.6%, way above the Bank’s target of 2%.
While inflation does remain a threat, financial experts believe the weak economy and battered business confidence will mean the BoE cuts rates from 4% to 3.75% later this month.
Caution could become paralysis
Omer Mehmet, Managing Director at Welling-based Trinity Finance, said: “The Bank of England holding interest rates at 4% risks turning caution into paralysis, especially when households are still feeling the hangover from two years of high borrowing costs.
“A trim to 3.75% in December would be a sensible step. It wouldn’t be a victory lap, but it would be a measured move that signals confidence that the worst has passed. The Bank can always pause again if the data turns — but right now, a cut is the more credible choice and markets seem to think one is coming.”
Ken James, Director at London-based Contractor Mortgage Services, hoped for a cut but says the BoE will, as ever, remain cautious about high inflation.
He said: “The Bank still fears inflation’s lingering ghost. Price pressures remain above target and Threadneedle Street will be worried that a premature reduction risks undoing hard-won progress. However a cut is on the cards as the Bank’s mood does appear to be shifting from stern Scrooge to cautious Fezziwig.
“While savers should expect rates to soften, borrowers may finally feel a little relief if the festive spirit takes hold at Threadneedle Street and they deliver a modest Christmas mercy: a cut from 4% to 3.75.”
Cut in interest rates essential
Ben Perks, Managing Director at Stourbridge-based Orchard Financial Advisers, said a cut in interest rates is essential to ignite economic growth.
He added: “Mr Bailey has the opportunity to bring the festive cheer where Reeves categorically failed. After being hammered by the Budget, working people could really do with some extra money in their pockets and a reduction in base rate would provide this.
“Leave the inflationary fears in 2025 and do something to help the public going into 2026. The BoE has an opportunity to ignite some economic growth, so let’s see a drop to 3.75.%”
Chris Barry, Director at London-based Thomas Legal, said urgent action by the Bank is needed.
He continued: “The Bank of England has a habit of trying to drive forwards whilst looking in the rear view mirror. For many months, the data has suggested a rate cut is what’s needed to stop the economy getting worse but instead they decide to hold.
“Concern around the MPC table seems to focus on the risk of continued inflationary pressure but no action will be bad news for both the property market and economic growth.
“The BoE should step in now, provide some important and much needed relief for borrowers and help stimulate growth.”
Bank will remain wary
Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, believes there’s a good chance the Bank of England will cut interest rates to stimulate the economy as the Budget didn’t help the growth cause at all.
But he cautioned: “It’s a tough balancing act against inflation, though, which still hasn’t come down far enough. The Bank of England will be wary of a combination of low growth and inflation.”
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, believes a cut will be delivered.
He said: “Though a rate cut will be bah humbug for savers and importers, it would be an early Bank of England Christmas present for borrowers, and it’s one that is looking likely with markets pricing in around a 90% chance of a rate cut.
“November’s meeting saw a narrow 5-4 vote to hold rates, with four members already favouring a reduction to 3.75%, signalling the Monetary Policy Committee’s dovish tilt. Inflation dropped to 3.6% in October from a 3.8% peak, and growth remaining weak, conditions for a cut appear firmly in place.”
0.5% not off the table
Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, believes a rate cut is baked in and wouldn’t be surprised if interest rates were cut even harder, by 0.5%.
He added: “The Bank of England is due to cut rates in December as consumer confidence continues to fall and inflation weakens. The debate is not whether it will slash the base rate, but by how much.
“There is a fair chance that a few members of the committee will be brave enough to ask for a 0.5% cut, but the ultra-conservative governor, Andrew Bailey, will lead his merry men in a moderate 0.25% doing little to nothing to ease the pain of this dampened economy.”
Photo by Ekaterina Shevchenko on Unsplash
