Bank of England rate of interest change ‘doubtless’ – what it might imply to your cash
The Bank of England will meet this week to decide on interest rates. Here’s what experts are saying and what it could mean for your finances
People across the UK who are currently paying back mortgages or loans could be in for some welcome news this week, according to financial experts. The Bank of England is expected to slash interest rates to their lowest level in almost three years, delivering what economists are calling “festive news” for borrowers.
The Bank’s Monetary Policy Committee (MPC) is widely expected to trim interest rates from 4% down to 3.75% this Thursday. Such a move would bring borrowing costs down to their lowest point since early February 2023.
The upcoming decision from policymakers, which marks the final one for the year, comes as economic figures show UK inflation is cooling off – although it remains high. Consumer Prices Index (CPI) inflation fell to a four-month low of 3.6% in October as gas and electricity prices rose at a gentler rate than the previous year.
Financial experts reckon that falling inflation, along with other signs of economic deceleration, will push policymakers towards a rate reduction next week. Laith Khalaf, head of investment analysis at AJ Bell, reckoned 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.”
This comes ahead of an imminent decision following last month’s autumn Budget, which some economists believe was less likely to curb inflation than they had hoped. Prior to the Budget, there were whispers that the Government might choose to hike income tax rates, which could have exerted a downward force on inflation – but this didn’t come to pass.
Philip Shaw, an economist at Investec, stated that the tax measures introduced 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 further commented: “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 suggested the vote will “hinge solely” on the Bank’s Governor, Andrew Bailey, who has hinted he believes the inflation outlook is getting better. The US Federal Reserve has opted to slash interest rates this week to the lowest level since 2020, with its chair Jerome Powell stating that the central bank would be meticulously evaluating economic data in the coming months. Again, inflation remains above target in the US, however.
What does a drop in interest rates mean for me?
A reduction in interest rates would directly impact the finances of those currently repaying a loan or a mortgage with a variable interest rate. However, those on a fixed interest rate will likely remain unaffected, depending on the duration of their contract agreement.
Should the bank decide to lower interest rates, some individuals may see their repayment costs decrease. If you’re uncertain about how a shift in interest rates could influence your specific mortgage, numerous mortgage calculators are available from banks and other financial websites.
