The Bank of England interest rate sits at 4 per cent after a reduction last week – but it could be the last one in 2025
The chance of another Bank of England interest rate cut in 2025 is fading after new figures on the economy’s performance earlier this year defied expectations.
Financial traders have reduced their bets on a cut taking place at November’s Monetary Policy Committee (MPC) meeting, and economic experts say the prospect of the rate dropping to 3.75 per cent is getting slimmer.
The economy expanded by 0.3 per cent in the period from April to June, according to Office for National Statistics (ONS) figures and, although this was a slowdown compared with the first three months of the year, it beat forecasts of a 0.1 per cent expansion.
New FeatureIn ShortQuick Stories. Same trusted journalism.
The Bank pays close attention to economic growth and is often more likely to cut rates if the economy is performing badly because this can sometimes push inflation downwards.
Lower rates generally mean mortgages and other types of borrowing are cheaper for consumers, and higher rates mean the inverse.
Matthew Ryan, head of market strategy at financial services firm Ebury, said the “figures should ease pressure on the Bank of England to continue cutting rates”.
“Markets are now bracing for a pause at the next couple of MPC meetings in September and November,” he said.
Thomas Pugh, economist at audit, tax and consulting firm RSM UK, said the latest figures would support the argument “that interest rates are not that restrictive [high] at the minute and is another mark against a rate cut in the fourth quarter of the year”.
Predictions of how many rate cuts will occur over the next few months vary. Some forecasters suggest there will be no more cuts, while others suggest there will be one more before the end of the year.
According to bets placed by financial traders, the chance of a cut in November – the most likely timing according to most economists if there were to be a cut this year – has fallen from 42 per cent to 39 per cent.
Patrick O’Donnell, chief investment strategist at Omnis Investments added: “The probability of a further cut from the Bank of England by the end of the year has reduced somewhat following their recent guidance and labour market data. The next signpost for the market will be next week’s inflation report.”
The chance of another rate cut reducing will spell bad news for some mortgage holders, though news of the economy growing faster than expected is generally positive.
Those on tracker and standard variable mortgage rates see their costs immediately reduced when the Bank of England cuts interest rates.
These customers are seeing reductions at the moment after the Bank cut rates last week, and would have been in line for more cuts if another were to follow.
Predictions that interest rate reductions may be slower than previously expected could also mean that fixed mortgage rates do not come down as quickly as would otherwise be expected.
Fixed mortgage rates tend to follow swap rates, which are based on long-term predictions for where the Bank of England base rate will go in the future.
If financial markets begin to expect faster rate cuts, mortgage rates can come down, but slower cuts can mean rates rise or do not come down further.
At the moment, swap rates have not moved dramatically on the latest economy figures.