As expected, the Bank of England cut interest rates on the first Thursday in November.
The Bankโs Monetary Policy Committee voted 8-1 to cut rates to 4.75% from 5%. It represented a cautious optimism about the economy.
"We need to make sure inflation stays close to target, so we can't cut interest rates too quickly or by too much. But if the economy evolves as we expect it's likely that interest rates will continue to fall gradually from here," BoE Governor Andrew Bailey said in a statement.
The BoE predicted that the previous weekโs budget, which included big increases in tax, spending and borrowing, would boost the size of Britain's economy by around 0.75% next year โ but at the risk of increasing inflation.
In fact, the BoE said inflation was likely to rise to around 2.5% by the end of this year from 1.7% in September and hit 2.7% by the end of next year, before falling gradually below its 2% target by the end of the three-year forecast.
This makes further rate cuts look unlikely for the near future at least โ but what about your finances now?
What does the base rate drop mean for mortgages?
The Bankโs base rate cut is certainly good news for borrowers, who have faced a tricky few years navigating the mortgage market.
Those with trackers will see an immediate change. Those with fixed-rate mortgages will feel the impact when their current deal comes to an end.
But the decline in the base rate is already being factored into lower mortgage rates, so borrowers should not expect any drastic reductions in fixed rates now. Fixed rate pricing depends on what the market anticipates may happen to interest rates in the future. With concerns about the global economy increasing after the Trump election, costs may edge higher.
The Bankโs base rate cut could further boost the housing market, with the prospect of improved mortgage affordability likely to boost buyer confidence.
How will the rate cut affect annuities?
A cut in interest rates can usually lead to a fall in annuity rates. However, annuity incomes are currently at a two-year peak thanks to long-term gilt yields, which themselves have risen as a result of the Budget.
There may be some downward pressure in the coming weeks but with news that any future cuts will be slow and gentle, annuities could remain attractive for the foreseeable future.
Bad news for savers?
Savings rates are likely to tumble further in the wake of the base rate cut, although there could still be scope for securing a more appropriate deal by shopping around. If you donโt need to access the cash in the short term, you could consider opting for a fixed-rate account to lock in a higher level of interest for longer.
What about investments?
Lower rates should be good news for British companies, which will find that it costs less to borrow for stock and equipment. Investing in smaller UK businesses (those in the FTSE 250 rather than the FTSE 100) might look more attractive as a result. International companies, which are more likely to be listed in the FTSE 100 may also benefit, but they may benefit far more from the renewed strength of the dollar after the US election.
What should you do?
Any change to the Bank of England base rate means it is time for a fresh look at your financial plans. The change is a relatively small one, and we are still a long way from the halcyon days of interest rates below 1%, but you need to ensure that the financial calculations you base those plans on are up to date.
There may be scope for saving money on your mortgage, time to move your savings and a need to look at your investments.
At Continuum we will be pleased to help. Call us today.
Mortgage product choice rises as rates | Moneyfacts
Bank of England cuts interest rates to 4.75%
Pound, UK stocks get a lift from BoE's rosy rate view
Bank of England cuts rates but sees higher inflation after Reeves's budget | Reuters
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