Responses to Bank of England Interest rate cut - Feb 6

Chancellor of Exchequer, Rachel Reeves said:  

“This interest rate cut is welcome news, helping ease the cost of living pressures felt by families across the country and making it easier for businesses to borrow to grow.

“However, I am still not satisfied with the growth rate. Our promise in our Plan for Change is to go further and faster to kickstart economic growth to put more money in working people's pockets. That's why we are taking on the blockers to get Britain building again, ripping up unnecessary regulatory barriers and investing in our country to rebuild roads, rail and vital infrastructure.”

Rt Hon Mel Stride MP, Shadow Chancellor of the Exchequer, said:

“This will be welcome news for many families and businesses who have been hit hard by Labour's mismanagement. Sadly their disastrous Budget is likely to mean fewer rate cuts this year than previously anticipated.

“Under new Leadership, the Conservatives will back business and our nation of entrepreneurs to create jobs and wealth. That is the only way to grow our economy so everyone can have a more secure future.”

ENDS

Notes to Editors:

Labour's Budget risks keeping interest rates higher for longer:

• The OBR confirmed Labour's Budget could increase interest rates by 0.25 from 2025-26. The OBR stated: ‘The policy package is assumed to increase Bank Rate and gilt yields by 0.25 percentage points from 2025-26 onwards, and RPI inflation by an average of 0.3 percentage points' (OBR,Economic and fiscal outlook, October 2024, 30 October 2024, link).

• The Bank of England set out that ‘around half of mortgages are expected to see payment increases by 2027 Q4'. '37 per cent of fixed rate mortgage accounts have not yet re-fixed since rates started to rise in 2021 H2, so the full impact of higher interest rates has not yet passed through to all mortgagors. Between December 2024 and 2027 Q4, around 50 per cent of mortgage accounts (4.4 million) are expected to refinance onto higher rates (orange squares in Chart 4.2). Of these, 2.7 million (31 per cent of all mortgages) are expected to refinance onto a rate above 3 per cent for the first time and roughly 420,000 (5 per cent of all mortgages) will see payments increase by more than £500 per month' (Bank of England, Fiscal Stability Report – November 2024, 29 November 2024, link). 

More people will face higher mortgages because of Labour's choices:

• According to Bloomberg, the spike in gilt rates has driven average five-year mortgage rates up to 5.3 per cent, costing the average mortgage holder an additional £500 per year. Five-year fixed mortgages hit 5.3 per cent on Friday 17 January 2025 after a rise in gilt rates following the Autumn Budget 2024. According to Bloomberg, this will cost mortgage holders an additional £500 per year (Bloomberg, 19 January 2025, link).

• Data shows that somewhere around 1.7 million fixed mortgages are expected to come to an end in 2025. According to UK Finance around 1.7 million fixed rate mortgages will come to an end in 2025, meaning homeowners will be renewing their rate. Note that some people with fixed rates ending will not then renew their mortgage – for example if they have paid the mortgage off (UK Finance, Key mortgage market data, accessed 24 January 2025, link).

Under Labour, families are feeling the pinch:

• The average annual energy bill is forecast to increase by £216. In July 2024, the energy price cap was set at £1,568. According to Cornwall Insights, the energy price cap is forecast to be set at £1,784 in June 2024, a £216 increase (OFGEM, News, 1 July 2024, link; Cornwall Insights, accessed 10 January 2024, link).

• The cost of filling a 55-litre family petrol car will increase to £76.44. Since the start of October, the price per litre of petrol and diesel has increased by 5p and 6p respectively. This means filling up a 55-litre family petrol car would cost £2 more, increasing from £74.25 to £76.44 (This is Money, 5 February 2025, link).

Jenny Ross, Editor of Which? Money, said:

"Though the decision to cut interest rates again will offer some small relief to those remortgaging or buying, mortgage rates are unlikely to fall dramatically in light of the announcement. As a result, many households may still be concerned about meeting their repayments.

"Anyone worried about managing their payments should speak to their mortgage lender, which is obliged to help. Lenders may be able to suggest alternative payment options, such as a temporary payment holiday or only paying the interest on repayments.

"Savers should also review their accounts, as it's likely banks will be quick to slash the rates on instant-access products. Be sure to shop around for the best rates to ensure your money is working as hard for you as possible - our research has found that digital banks and building societies have consistently outperformed traditional high street banks' rates, so remaining loyal to one provider could be a costly mistake."

Interest rate reaction: The Bank is still moving too slowly, says IPPR 

Reacting to today's decision by the Bank of England's Monetary Policy Committee to cut interest rates, Carsten Jung, principal research fellow and head of macroeconomics at IPPR, said: 

“The recent economic weakness in the UK is primarily driven by too high interest rates. While many commentators focus on project-by-project discussions that individually have small effects, the elephant in the room is high rates. Today's rate cut was therefore much needed, but the Bank is still moving too slowly. 

“We are in the last mile of returning to normal rates of inflation. While the energy price shock is still rippling through the system, recent measures of underlying inflation show we are back to historical averages. By keeping rates high the Bank has been perhaps understandably cautious, but their current stance looks increasingly zealous.” 

Bank must keep moving with rate cuts to help households and businesses, says TUC

Commenting on today's (Thursday) decision by the Bank of England's Monetary Policy Committee to cut the rate of interest to 4.5%, TUC General Secretary Paul Nowak said:

“This rate cut is badly needed to help lift the economy out of stagnation. The Bank must now keep moving with further cuts to support households and businesses in the months ahead.

“Lower borrowing costs will ease pressures on households, helping families with their weekly budgets and leaving them with more to spend. And it will make it more affordable for businesses to invest and grow.”