Bank of England Cuts Base Rate to 4.25%: Impacts on UK Economy Explained

Impact of the Bank of England’s Rate Cut on the UK Economy

The Bank of England’s recent decision to lower its base rate from 4.5% to 4.25% is deemed a significant turning point for the UK economy. This move, anticipated by many, pushes the rates down by a whole percentage point from their high point last year. More incremental and cautious reductions are planned for 2025.

Who Benefits from the Interest Rate Cut?

As the rate cut unfolds, it is important to understand who will reap the benefits and who will bear the costs. Let’s dissect the potential winners and losers in this scenario.

Mortgage Payers: The Winners

Those near the end of their fixed-term mortgages and potential buyers are likely to benefit from the interest rate cut. However, lenders usually rely on long-term interest rate forecasts. According to ThisisMoney, this rate cut could be advantageous, especially for those with tracker mortgages, who should see an immediate benefit.

Savers: The Losing End

Conversely, savers might face a setback. Isaac Gross, an economics lecturer at Monash University, believes this rate reduction will slow the growth of savings, making it tougher to accumulate income over time. Nonetheless, Akoni Hub suggests that proactive savers can still find better deals, particularly from challenger banks eager to attract new customers.

Small Business Owners: The Beneficiaries

According to Aberdeen Investments, small businesses generally fare well after rate cuts, often yielding higher returns compared to large firms due to their greater exposure to the UK domestic economy.

Retirees: The Sufferers

Retirees, who often depend on income from interest-bearing assets for their retirement funding, may find the rate cut challenging. The Telegraph notes that the base rate cut and ongoing market turbulence could affect the growth of their cash savings, potentially compromising their retirement lifestyle.

In the midst of market chaos and additional tariffs, some pensioners estimate that their retirement funds have decreased by as much as £120,000.