Money blog: Major boost for mortgage holders as Bank of England finally cuts interest rate (2024)

The Monetary Policy Committee (MPC) voted 5-4 in favour of cutting the interest rate to 5% flat, with governor Andrew Bailey the deciding factor.

The last MPC meeting saw members voting 7-2 in favour of holding the rate.

Our business presenter Ian King says the minutes from the meeting "note earnings growth fell to 5.6% in the three months to May and services inflation coming down".

"So the Bank satisfied there that inflationary pressures are starting to ease," he adds.

However, "I think what you can take from the minutes [and the voting split] might be that this will be the last interest rate cut for a while".

"The market is pricing in another rate cut between now and the end of the year, but it looks like this decision was pretty finely balanced."

It has been a long time coming.

After two years during which the Bank of England raised interest rates at nearly every meeting - and another year in which those rates sat at what is, for many households and businesses, a painfully high level - today they have finally been cut.

So this is a watershed moment - a critical turning point for the UK economy.

Interest rates are the Bank's main tool for trying to control inflation.

Higher rates deter people from borrowing and encourage them to save - hence less money gets spent out there in the economy and retailers become less confident about setting high prices.

High interest rates are, to put it more bluntly, a form of economic pain.

And the Bank thinks that even at 5%, where they are now after today's cut, they are still at a painful level - or, as they would put it, "in restrictive territory".

This is a large part of the explanation for why unemployment is higher, house prices are lower and for why many households are still struggling - even though the annual rate of inflation is now back to the Bank's target rate of 2%.

So the decision to cut rates will start, gradually, to reduce that pressure - that pain.

Indeed, in some senses the pain is already reducing somewhat: mortgage providers, anticipating lower Bank of England rates, have already begun to reduce fixed rate mortgage rates.

Today, those with floating rate mortgages will see an instant reduction in their costs.

The big question now is: what next? First things first, don't expect those borrowing costs to come down as quickly as they went up. Markets think there might be one more cut this year, and that borrowing costs will come down quite gradually.

Second, few people inside the Bank expect borrowing costs to come down to the levels they were at back in 2021, when they were sitting at a historic low of 0.1%.

Instead, they seem moderately happy with market expectations that rates will drop only to 3.5% over the next three years.

Are interest rates still in "restrictive territory" then? That's a question no-one at the Bank wants to answer.

The Bank's decision today wasn't exactly a surprise: financial markets had put the probability of a rate cut today at over 60%.

Even so, it was perhaps the most finely balanced decision in a long time.

Far from being a unanimous verdict, four of the nine members of the Monetary Policy Committee actually voted to leave interest rates at 5.25%. This wasn't, in other words, a slam dunk.

And the documents released alongside the decision were chock full of provisos: rates would need to "remain restrictive for sufficiently long until the risks to inflation retuning sustainably to the 2% target in the medium term had dissipated further".

In other words: we're not out of the woods yet. The Bank is still paranoid about inflation. Then again, it always was. And today it finally cut interest rates - and signalled there will be more to come in the coming months.

By Ed Conway, economics and data editor

The Bank of England has cut interest rates by a quarter percentage point to 5%.

The Bank's nine-member Monetary Policy Committee voted 5-4 to bring borrowing costs down, bringing to an end the joint-longest plateau for rates since the Bank was granted independence in 1997.

Lower interest rates will instantly be reflected in many savings accounts and floating rate mortgages, though those selling fixed rate mortgages had long ago reflected the likelihood of lower rates.

The Bank's decision came after the consumer price index rate of inflation dropped to 2% this summer - the MPC's target.

However, updated forecasts from the Bank's staff suggests inflation will bounce back in the coming months, rising to around 2.75% by the end of the year.

It is a watershed moment, since many economists expect the Bank to continue cutting borrowing costs in the coming months.

However, Governor Andrew Bailey warned that consumers should not expect the Bank to cut rates as rapidly as it had raised them (14 successive increases between late 2021 and mid-2023).

"Inflationary pressures have eased enough that we've been able to cut interest rates today," he said.

"But we need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much. Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country."

The Bank sharply upgraded its forecast for economic growth this year, from 0.5% to 1.5%.

It expects the economy to expand by 0.7% in the second quarter, followed by 0.4% the quarter after that.

However, it said it had yet to incorporate the impact of any measures introduced by Rachel Reeves into its forecasts.

The nine MPC members were briefed on the new chancellor's latest fiscal announcement earlier this week - about a "black hole" in the public finances and various measures to fill it.

That announcement included a 5.5% pay increase for public sector workers.

Bank insiders say that deal is unlikely to stoke noticeable inflationary pressure, but it will do a full audit of the plans after the budget in October.

Annual house price growth has picked up to the fastest rate since December 2022.

UK house prices rose 0.3% month-on-month in July, Nationwide Building Society said.

This resulted in a slight acceleration in the annual rate of house price growth from 1.5% in June, to 2.1% in July - the fastest pace since December 2022.

Across the UK, the average house price in July was £266,334.

Robert Gardner, Nationwide's chief economist, said housing market activity has been holding relatively steady in recent months with the number of mortgages approved for house purchase at around 60,000 per month.

"While this is still (around) 10% below the level prevailing before the pandemic struck, it is still a respectable pace given the higher interest rate environment," he said.

GPs across England have voted overwhelmingly in favour of taking industrial action as part of a dispute over funding and contract changes, the British Medical Association (BMA) has said.

More than 8,500 GPs in England took part in the ballot and 98.3% voted in favour of taking partin one or more examples of collective action.

This means, from today, the BMA will encourage practices to choose from a list of 10 actions, andpractices can choose to implement as few or as many as they think appropriate.

This disruption could potentially see GPs limit the number of patients they will see each day to 25.

They could also choose to stop performing work they are not formally contracted to do.

The last time GPs took collective action was in 1964 when family doctors collectively handed in undated resignations to the Wilson government.

Earlier this week, Dr Katie Bramall-Stainer, chairwoman of the BMA's England General Practitioners Committee, said this was not a strike but "collective, premeditated, disruptive action".

"If it's done effectively, it's done collectively and it's done well, it will bring the NHS to a standstill very quickly - but not for patients, (for) all the NHS admin, the policymakers who have put in place these decisions that aren't helping patients," she said.

What is the dispute about?

Dr Bramall-Stainer said she wanted to talk to the government about a Family Doctor Charter 2025, 60 years on from the original.

"The GP model is why the NHS has lasted as long as it has done and when you try and break the GP model, you break the gatekeeper, and when you break the gatekeeper, you break the NHS," she said. "I think that is what we're seeing on a macro level."

Dr Bramall-Stainer said there had been "three successive contracts impositions over the past three years".

The new GP service contract will see services given a 1.9% funding increase for 2024-25 - which the BMA said means many surgeries will struggle to stay financially viable.

A Department of Health and Social Care spokesperson said: "The health and social care secretary has met with the chair of the BMA's GP committee to discuss their priorities ahead of their ballot closing on 29 July.

"However, it is important we plan for all contingencies, in every eventuality, to keep patients safe."

By Daniel Binns, business reporter

The FTSE 100 is up slightly this morning - by 0.3% - after a string of positive corporate updates - and as investors brace themselves for the Bank of England's decision on interest rates at noon.

Rolls-Royce soared more than 10% to an all-time high after upgrading its forecasts for 2024 and announcing it would restart its dividend.

The manufacturer is now predicting an underlying operating profit of up to £2.3bn for the year.

Clothes retailer Next is also up more than 8% after it posted better-than-expected sales despite a wet start to the summer.

Barclays has inched upwards by almost 1% after it raised its full-year outlook while revealing an 8% drop in half-year profits. However, it also announced a £750m share buyback programme.

But it's bad news for Wizz Air, which is down more than 14% on the FTSE 250.

The low-cost carrier reported a 44% drop in its first-quarter operating profit and cut its annual forecast earlier on Thursday.

It comes after the airline was named the worst for customer service by consumer group Which? in a report yesterday - an accusation it strongly denied.

Asset management firm Schroders Plc has also dropped more than 6% on the FTSE 100.

The slump comes after it posted an 8% fall in first-half profits.

On the currency markets, this morning £1 buys $1.28 US or €1.18.

Meanwhile, as tensions in the Middle East continue to simmer, the benchmark price of a barrel of Brent Crude has climbed almost 1% to just over $81 (£63).

By Alix Culberton, political reporter

Tax rises are likely to be announced in the autumn budget, the chancellor has admitted.

Rachel Reeves said Labour would stick to its election manifesto pledge not to raise national insurance, income tax or VAT.

During the election campaign, Labour candidates avoided answering questions on whether other taxes would be increased - and the Conservatives warned that Labour would raise other taxes.

But on Tuesday, the day after announcing several money-saving measures, Ms Reeves told The News Agents podcast: "I think that we will have to increase taxes in the budget."

She would not say which taxes could be raised during the Labour government's first budget on 30 October.

Sky News looks at which ones could be targeted.

Inheritance tax

This is one of the taxes most likely to be changed.

Inheritance tax is charged at 40% on the value of an estate above £325,000 when someone dies.

The tax rate could be increased or the value people have to pay inheritance from could be lowered to raise money.

There are currently several exemptions, including on agricultural land and family businesses, but these could be lifted to include them.

The government could also reduce the number of years allowed when giving away assets before someone dies before inheritance tax kicks in.

A leaked recording from March revealed now chief secretary to the Treasury, Darren Jones, saying inheritance tax could be used to "redistribute wealth" and address "intergenerational equality".

Capital gains tax

Capital gains is imposed on the profit from the sale of capital assets, including second homes, shares, business assets and most personal possessions worth £6,000 or more, apart from cars.

Currently, people do not have to pay tax on the first £3,000 of profits, or £1,500 for trusts.

The minimum limit could be removed and the tax could be imposed on assets currently exempt.

Like inheritance tax, it is one of the taxes that is being most talked about to be targeted.

Council tax

In the leaked recording from Mr Jones, he said he was frustrated by the "out of date" council taxsystem and hinted homes worth over £1m may have to pay more.

Former shadow minister Jonathan Ashworth told Sky News during the election campaign that Labour would not change council tax bands.

Council tax is currently set in bands that are based on the 1991 value of homes, which has been branded "absurd" by the Institute for Fiscal Studies (IFS) and "incredibly poorly designed" by the Institute for Government "(IfG).

Gemma Tetlow, chief economist at the IfG, said council tax could be reformed "in a very sensible way... rather than having the banded system you could move to something that is much more proportional tax on land revenue".

She added: "You could do that sensible structural reform and raise some extra money at the same time."

Business rates

Labour are understood to be consulting on changing business rates, which are charged on most non-domestic properties with relief for some including small businesses, retail, hospitality and leisure properties.

A change could be made so they are related to the value of the land instead of the current rateable value, which is an estimate of how much it would cost to rent that property for a year in April 2021.

Stamp duty

Stamp duty is paid on the cost of a property over £250,000, with more paid for second homes and by non-UK residents, and relief for first-time buyers.

It currently discourages people from moving home and is part of the reason older people are not moving out of expensive, larger properties.

Labour could change the tax so it is focused on annual land value tax instead of on a transaction - but that could be a hard sell with the party.

By James Sillars, business reporter

Anyone who can tell you with certainty what the Bank of England will do today is, frankly, a mug.

The prospect of a first interest rate cut is hanging in the balance.

It has been dangled seductively by the Bank throughout this year, only to be withdrawn month after month as elements of inflation remain too high for the liking of a majority on the rate-setting committee.

After all the sacrifices of the cost of living crisis to date, lower borrowing costs are closer than ever but still not nailed on having risen as far back as December 2021.

Yes folks, the progress in getting inflation down to the 2% target has continued and we have seen two successive months of the CPI measure coming in, bang on, at 2%.

But is that progress beneath the headline number "sustainable"?

Basic wage growth eased from a stubborn 6% level in June but services inflation remained at 5.7% - partly blamed by some commentators as a "Taylor Swift effect" due to the impact the singer's recent concerts had on prices in big cities where she performed.

The Bank had been expecting services inflation to come in at 5.1% by that time.

It all leaves borrowers such as mortgage holders, especially those facing the prospect of securing a new deal, sweating on how the Bank's monetary policy committee sees the outlook.

Some of the members could, for example, choose to look past the temporary effects within services inflation and swell the ranks of the two members to have previously backed a cut.

A poll of economists by the Reuters news agency found a small majority backing a cut to 5% from 5.25%.

Financial markets see a 64% chance of that.

One factor that could sway a cut is that August's rate decision coincides with the release of the Bank's latest monetary policy report.

That means the media is invited to a news conference - held every three months - giving governor Andrew Bailey the opportunity to give the TV news cameras some good news.

While such an idea would be tempting, can the Bank really say that inflation has returned "sustainably" to target?

We haven't seen them yet but much will depend on the new forecasts the Bank's rate-setters had to hand.

None of the members of the MPC have signalled any intent on changing their vote in public speeches since the last meeting.

Without a material change to the Bank's own inflation outlook, which currently sees CPI rising across the rest of the year, how can members justify a cut?

We will learn, either way, soon enough.

For Savings Guide this week, Savings Championco-founder Anna Bowes picks out the best fixed rate ISAs, bonds and easy access accounts on the market.

Best buy savings rates have remained almost static over the past month, presumably waiting for the next Monetary Policy Committee (MPC) meeting at the Bank of England - happening at lunchtime today.

The markets seem divided about what's going to happen today, but whether the base rate holds or falls, now is a great time to review your savings.

The reason for the lack of clarity is that although headline inflation CPI - the Consumer Prices Index - has fallen back to the government target of 2% for the last couple of months, there are still worrying indicators that could push inflation higher again going forward.

And at the same time, the economy seems to be coping well, despite interest rates still at a level not seen for 16 years.

If the base rate remains at 5.25% following today's meeting, savers can probably breathe another sigh of relief that once again they can enjoy some respite.

But if the base rate falls, we are likely to see savings rates follow suit, in particular variable rate accounts which are more closely pegged to the base rate changes as they happen.

If you can lock some of your cash up for a while therefore, you may be able to hedge against any rate cuts for a while, although remember that you can generally have no access to your money deposited into a fixed rate bond.

Fixed rate ISAs, on the other hand, do allow access, although normally with a hefty penalty.

And with more and more savers paying income tax on the interest they earn, it's definitely worth considering if now is the time to use cash ISAs.

Here's a look at the best savings rates available right now...

Asda has announced a major store reset - and admitted big improvements are needed - after its sales and market share declined.

The chain was the only major supermarket that had sales decline in the 12 weeks to July, according to NIQ figures - while its market share has fallen more than 2% since it was bought by brothers Mohsin and Zuber Issa and TDR.

It is now injecting £30m in emergency investment to try and lure back customers.

"We recognise that there are some areas where we can, and need to, improve, and have set out our plan for colleagues to improve the availability of products in stores, the overall customer experience, and ensuring we have the right trade plan throughout the remainder of the year," a spokesman for the retailer told The Grocer.

"We are investing an additional £30m during the remainder of the year to improve the in-store experience. This includes putting extra hours into store to help colleagues provide an even better service to customers."

Major projects, such as an IT overhaul needed after parting ways with Walmart, have diverted resources from the supermarket's core services.

Asda has endured criticism of its store experience (the chart below is from February) and it has faced staff strikes over hours being cut.

This week, The Daily Telegraph revealed the results of a staff survey that showed fewer than half of workers are confident in the strategy at the supermarket.