The Bank of England’s recent interest rate cut to 4.75% from 5% may not signal rapid further reductions, as inflation is expected to creep higher following the recent Budget. This widely anticipated cut offers some relief to borrowers but comes with a cautious message from Bank Governor Andrew Bailey. He highlighted that while the direction for rates is likely downward, future cuts will be gradual.
Bailey stressed that rates are expected to “continue to fall gradually from here,” but he warned against reducing them “too quickly or by too much.” He added, “The path is downward from here. We’ll see how quickly and by how much. I do emphasise the word gradual, and the reason for that is there are a lot of risks out there in the world at large and also domestically.”
Investor and Market Reactions
Following Bailey’s cautious outlook, investors now anticipate no further rate cuts this year, with the Bank expected to hold rates steady at its next meeting in December. The message of a slow and measured path to lower rates has led market analysts and investors to adjust their expectations.
Longer-Term Outlook
Capital Economics economist Paul Dales said he now expected rates to fall slower to 3.5% in early 2026 rather than to 3%. This outlook suggests a longer period of elevated borrowing costs, which may impact household budgets and business planning well into the coming years.
What This Means for Borrowers and Buyers
For borrowers, the expectation of sustained rates could mean continued higher monthly payments on variable-rate mortgages and loans. Property buyers may need to budget carefully, as higher borrowing costs are likely to persist. However, the gradual decline could also lead to stabilising property prices, presenting potential opportunities for those with strong financial positions who are looking to buy.
Conclusion
The Bank of England’s message is clear: while rates are expected to fall, the pace will be slow, reflecting the need to balance inflation control with economic stability in a complex global environment. Borrowers and property buyers should prepare for a prolonged period of relatively high rates, planning strategically and staying informed on further updates from the Bank as we head into the new year.
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