The Bank of England Base Rate is Reduced to The Lowest Level in 2 Years

Category: UK Government Announcements

The Bank of England base rate has just been reduced to 4%, its lowest level in 2 years. After a cutting-edge decision, and a first in history 2 meeting decision the Bank of England agreed to announce an interest rate cut today (7th August).

Read on to stay informed and make smarter financial decisions in a changing market.

Author: Sophie Hope

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The Bank of England just announced an interest rate cut today (7th August), taking the base rate to the lowest level in 2 years. The current Bank of England base rate is 4%, a 0.25% reduction from the previous rate.

The meetings at which the Bank of England base rates are decided had to be held twice for the first time in history. Due to not coming to an agreement, the meeting had to be redone to come to a final decision.

In the first meeting, 4 of the 9 members of the committee voted for rates to be reduced to 4%. While another 4 voted to keep the Bank of England base rate the same, and 1 member voted to reduce the base rate by 0.5%. Due to there being no voted winner, the committee had to hold a second meeting where the majority decided on an interest rate cut today, reducing it 4%.

What is a
Base Rate?

The base rate is the core UK interest rate that is set by the Bank of England. This core base rate is what influences banks’ interest rates for their customers who lend and save with them. For example, if the Bank of England raise the base rate, high street banks will usually follow the pattern and raise their interest rates too. If the Bank of England lower them, banks will usually decrease interest rates.

For example, as a result of the interest rate cut today, the average variable rate mortgage with a value of £250,000 being paid off over 25 years will see a decrease of £40 a month, according to Moneyfacts.

In conclusion, the higher the base rate, the more expensive loans are to pay back, and the lower the base rate, the less interest you pay. Therefore, it is crucial to ensure you take into account that interest rates can fluctuate and see if you can still meet affordability.

What Does the Reduction

Mean For Investors?

For investors, this is encouraging news. Lower interest rates mean cheaper borrowing costs, making mortgages more affordable and increasing potential returns on property investments.

With rates expected to decline, many see this as an ideal time to invest off-plan, locking in properties at today’s prices while benefiting from lower mortgage rates when you complete. It’s a smart strategy to get ahead of the curve in a changing market.

Base Rate Predictions

Many economists expect the Bank of England base rate to continue falling in 2025, with forecasts suggesting it could drop to 3.75%, or even 3.5%, by the end of the year. Current predictions point to another potential cut, likely in November, as inflation continues to ease and economic conditions stabilise.

Looking further ahead, experts at Oxford Economics predict the base rate could fall even further, reaching around 2.5% by 2027.