For the first time since March 2020, the Bank of England’s Monetary Policy Committee (MPC) on 1 August cut the standard base interest rate. The rate, which had climbed from almost zero at 0.1% during the pandemic to 5.25% last year, had been raised in every consecutive MPC meeting from December 2021 through August 2023. In September 2023, the MPC rate setters voted to keep the rate steady hoping the 16-year high rate would do the work against inflation to bring it to target at 2.0%. Inflation did reach target and the committee voted this month to cut the rate by 0.25% to 5.0%. Now the question is will there be another rate cut and when?

A recent poll by Reuters revealed a majority of economists believe there will be at least one more rate cut this year, and it will likely happen in November. This means we are only one meeting away from such a vote. There is a MPC meeting scheduled for September, none in October, and then two final meetings in November and December.

The majority vote to move the rate downward this month was a tight vote of only 5-4. The MPC has voiced they are going to take a careful approach with reductions to the base rate to hold inflation near target.

The rate of inflation did climb in the twelve months to July, which was reported this month. It is expected to remain above target throughout the rest of the year and fall below target in early 2025. There is another inflation report that will be released in September the day before the MPC meets. The inflation report is for the twelve months to August and will be released on 18 September followed by the MPC meeting on 19 September.

Inflation is expected to remain above the target rate, so if it is near the 2.2% reported this month it will not send the MPC to a vote to raise the base rate back to 5.25% but it is not likely to have them cut it to 4.75%. Instead, they are expected to let the base rate rest, and the economy settle around the new rate. Therefore, the expectation for a rate reduction in September is low. 

However, the MPC could offer one more rate cut by end of year according to the poll, and while most are expecting that to occur in November, it could spark high spending for the holiday season and send inflation back to a spot that requires months before another one occurs. It is then expected a December rate cut is more likely, it will happen during the holiday spending season, but not before and there will not be another MPC meeting until February 2025. This will allow the holiday induced spending to fade from the economic picture and the aftermath of it to be judged by the rate setters.

The good news is that the talk about the Bank’s base rate only involves reducing the rate and there is no expectation of the rate being increased. Also, for borrowers of large volume, such as home buyers with mortgage borrowing and homeowners with remortgage borrowing, current lender rates are competitive, and many deals are already below the current base rate.

This brings up the question as to whether it is better to borrow now or later. For home buyers, there are other considerations such as the fact current asking prices for new properties coming onto the market are lower than a few months ago. There are also more homes for purchase in the housing market and an increased supply allows buyers to shop and are more likely to find what they want rather than choosing from a slimmer inventory and having to settle with what is available.

As mentioned, lenders are currently competitive and therefore their offers are incredibly attractive and as demand grows, as it is expected to do, lenders could pull back from the competition with other lenders. The best deals could quietly disappear as lenders prepare for another rate cut to come. 

Therefore, it might prove home buyers a good strategy to take a look at the market now rather than waiting when the holiday home buying season starts.

For homeowners, those that are in need of a remortgage, deals are much more likely to save them money than passing by a remortgage opportunity and allowing their lender to move them to their standard variable rate (SVR). The average two-year fixed remortgage is near 5.0% while the average SVR is above 8.0%. Rather than pay more than necessary, homeowners should shop online for remortgage quotes to discover what deals are available. Brokers could offer exclusive deals and could offer many quotes from a variety of lenders. The homeowner could also go from website to website of lenders to gather quotes. Once quotes are available, it is simply a matter of reviewing and comparing to find the best deal.

Waiting for lower rates if and when the MPC votes for another reduction to the base rate could have a home buyer or homeowner missing out on saving now and finding out the waiting game produced only a slight shaving off lender rates if any compared to now.