A Bank of England rate cut is highly likely next week following a second consecutive month of economic contraction in the UK, according to experts. Concerns over potential tax increases in the upcoming Budget led to reduced consumer and business spending, resulting in a 0.1% decline in economic output for October, contrary to expectations of growth. This marks the fourth consecutive month without economic expansion, with the GDP remaining flat or decreasing.
Economists are increasingly confident that the Bank of England will lower its base rate from the current 4% at its upcoming Monetary Policy Committee meeting. Neil Wilson from Saxo Markets predicts a definite rate cut next week and anticipates further reductions in 2026. Lindsay James from Quilter also sees a rate cut as increasingly probable.
Philip Shaw of Investec Economics forecasts that Bank of England Governor Andrew Bailey will vote in favor of a base rate reduction at the next meeting, potentially resulting in a narrow majority supporting the cut.
TUC General Secretary Paul Nowak emphasized the need for the Bank of England to acknowledge the strain on households and businesses due to the living standards crisis and urged for additional interest rate cuts.
For borrowers, a rate cut to an expected 3.75% would offer further advantages, particularly benefiting mortgage holders. Lenders have already begun reducing fixed-rate mortgage costs in anticipation of the rate cut. Borrowers with variable rate mortgages, including those on standard variable rate or discounted deals, stand to benefit from the reduction.
Savers are advised to act promptly to secure the best deposit rates, as there is a possibility that rates may decrease or be withdrawn following a base rate cut. Fixed-term savings accounts can offer stability in interest earnings, but savers should review terms and withdrawal penalties before committing. Diversifying funds across different account types is recommended for flexibility and stability.
It is also suggested to review ISA allowances, considering the potential impact of changes announced in the Budget. Despite upcoming alterations, the current £20,000 limit for cash ISAs remains in effect, encouraging individuals to maximize their savings opportunities. Conducting a thorough comparison of financial products is advised to ensure alignment with individual needs and preferences.