The Bank of England has announced its first cut to the base rate of interest for over four years, slashing it from 5.25% to 5%.
After rates hitting a 16-year high, the move brings some relief to borrowers – particular those on tracker and variable rate mortgages, and those about to enter a new fixed rate deal on their home loan.
Expectations on financial markets has shown about a 65% chance of the Bank’s policymakers opting to reduce rates on Thursday.
The UK’s base rate has been held at 5.25% since August last year, the highest level since 2008.
Members of the Bank’s Monetary Policy Committee (MPC) voted for the cut by five to four.
Thomas Greenaway, associate solicitor at O’Reilly Stewart Solicitors in Belfast, said the change would likely trigger an upturn in the property market.
“For the last number of years, many prospective buyers have been put off purchasing their home due to excessive rates on mortgages.
” Although the property market has remained strong in recent months, despite high interest levels, many have been unable to afford the property they desired previously and those who have proceeded to buy a property with a mortgage have been faced with very high monthly payments.
“This announcement today will allow for an upturn in the property market as many will benefit from more affordable monthly mortgage rates.”
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the online investment platform, said many households would “breathe a big sigh of relief” following the decision.
It brings the rate down to a level not seen since June 2023.
She said: “The rate-setting MPC’s five-four vote in favour of reducing the headline rate by 25 basis points, after holding it at the same level for a year, means borrowers might begin to see some respite from painfully high borrowing costs.”
Ms Haine said that 14 interest rate rises in a row between December 2021 and August 2023 “delivered blow after blow to household budgets already grappling with the fallout from the cost-of-living crisis”.
“While the BoE’s heavy tightening cycle was necessary to bring rapidly rising inflation – which hit a peak of 11.1% in October 2022 – to heel, it left borrowers frantically trying to juggle heavier mortgage and debt repayments along with soaring energy, food, fuel and household bills.”
But there was now some good news for finances “battered by high living and borrowing costs over the past few years”.
However, she added: “The worst of the cost-of-living crisis may now be consigned to history, but the rapid price rises of the past few years are pretty much baked in, so, balancing the books is still far from easy for many.”
It comes after new economic data suggested the UK’s cost-of-living crisis has eased in recent months thanks to inflation coming off the boil.
Consumer Prices Index (CPI) inflation hit 2% in May and June, which is the central bank’s target level, indicating that price rises have been brought under control.
Economists stressed that other key indicators of inflationary pressure – mainly services inflation and wage rises – have remained a concern for policymakers.
James Smith, developed market economist for ING, said it will be a “close call” but he expected a majority of policymakers to vote in favour of a 0.25 percentage point rate cut on Thursday.