The Bank of England's recent reduction in the base rate from 5% to 4.75%brings a mix of relief and concern. For millions of homeowners, this cut is welcome news as it could lower mortgage costs, which have been rising over the past two years. However, the downside is that savings rates are likely to decrease as well.
The base rate, which influences borrowing costs and savings returns, had peaked at 5.25% in August 2023. It was then reduced to 5% in August 2024 and held steady until the recent cut. This decision follows a drop in inflation to 1.7%, below the Bank’s target, prompting the rate cut to stimulate spending and economic activity.
While lower interest rates can ease the financial burden on borrowers, they also mean reduced returns for savers. This dual impact highlights the delicate balance the Bank of England must maintain in managing economic growth and inflation.
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