The decision by the Bank of England’s Monetary Policy Committee (MPC) to cut the base rate by another 0.25 percentage points to 4.75% is a really welcome one for Northern Ireland.
People on variable rate mortgages, whose repayments go up and down depending on the MPC decisions, will experience a fall in their monthly repayments.
It’s also a better outcome than might otherwise have been the case if you’re on a fixed rate mortgage and your existing deal is due to expire soon.
According to UK Finance, there are 52,946 homeowners in Northern Ireland on variable rates – about one-fifth of the total.
The Bank of England cuts interest rates for the second time this year
But they’ll not be rushing out on spending sprees just yet. Let’s not forget that today’s cut follows the 14 consecutive rises of December 2021 to August 2023, when the rate hit 5.25%. That series steadily added to their monthly repayments.
August this year brought the rate down to 5% in the first cut since March 2020. It’s quite possible we won’t be seeing a return to the low levels of 0.25% of December 2021 following a steady series of cuts in response to the Covid-19 pandemic.
According to UK Finance, there are 185,637 people on fixed rate mortgages – nearly 80% of the total. Some would have remortgaged last year, at a period when rates were at 5.25%.
They likely entered a fixed rate deal a few years earlier at rates of 2% or lower, only to emerge, blinking, into a world of rates of over 5%. In some cases, that brought an overnight rise in repayments of £300 a month. And it also happened at a time when other costs, like food and energy, were elevated.
Inflation and costs like energy and food have been coming down from the nightmarish highs of the cost of living crisis. Inflation was at 1.7% in September, and is tipped to hit the Bank of England target of 2% in 2027.
Andrew Bailey, Governor of the Bank of England, and Bank of England’s Head of Media and Stakeholder Engagement Katie Martin. Image: Henry Nicholls/PA Wire
But we can’t be complacent about our finances. Chancellor Rachel Reeves’ Budget last week announced £40bn of tax rises. Even though the Labour Party has vowed not to increase taxes for working people, her decision to push up employee national insurance contributions will have an impact on wages in the long-run. Employers are likely to put the brakes on price rises in order to pay for the increase in national insurance.
The planning and predictions of the MPC did take the Budget into account but the success of Donald Trump in the US Presidential election has injected more uncertainty.
If he pursues the tariff policy he’s promised, imposing levies of 10% up on goods coming into the US, that could trigger a trade war which could affect world economies – including the UK.
Closer to home, Power NI, NI’s biggest electricity supplier, announced a 4% increase in its domestic tariffs from December, and other suppliers are likely to follow suit.
But for now at least, the interest rate cut is a win to be celebrate.