Bank of England Reduces Interest Rates to 0.25%

On Thursday the Bank of England announced that interest rates will be reduced from 0.50% to 0.25%, a record low for the UK and the first cut since the Credit Crunch. The reduction follows the result of a Brexit vote, with the government anticipating a slowdown in the economy and trying to improve things, alongside other measures like more quantitative easing.

So what does this cut in interest rate mean for you and your finances?

Savings & Investments

Rate of returns on savings are likely to be reduced in a bid to get people to spend money and boost the UK economy.

If the banks mirror the Bank of England rate, for every £10,000 saved in a bank account, a reduction in interest of £25 per annum should be expected. However, some banks may not cut their interest rates and it is always worthwhile to shop around for the best rates available.

There is a possibility that investment values will improve as savers look towards stocks and shares to produce the income they are missing from their savings.

Loan and Mortgage Rates

On the other hand, a cut in interest rates will be beneficial to borrowers, and loans should be available at cheaper rates.

Mortgage rates may decrease depending on the type you have. For fixed rate mortgages there will be no reduction, but if you have a “tracker” mortgage the reduction should be instant. Lenders are currently deciding whether to pass on the savings for customers on their standard variable rates.

Weaker Sterling

As we have already seen, Sterling has weakened, and this has continued following the rate reduction.

Going on holiday overseas will become more expensive, with holidaymakers getting less for their money when buying foreign currency.

From a business perspective, a weaker currency will make importing goods more expensive, which will probably affect inflation. On the other hand, exporters will see their products and services look more competitive on the international stage, and foreign investment into the UK potentially looks like a better deal.

Conclusion

The rate reduction is a mixed bag for your personal finances, and there will be winners and losers. The bigger concerns are the headwinds facing the British economy after Brexit, which were the underlying reasons for the reduction in the first place.