The Bank of England has cut UK interest rates from 4.25% to 4%, the lowest level since March 2023.
The Bank of England interest rate can affect mortgage rates and interest rates on savings, as well as the speed at which prices change and how the jobs market performs.
For those with a standard variable rate mortgage of £250,000 over 25 years, repayments will fall by £40 a month.
Those with a five-year or two-year fixed term mortgage may not feel the difference as quickly, as their interest rates have continued to fall, reaching 5.01% for five-year loans and 5% for two-year loans this month.
While lower interest rates are good news for households with home loans, it is a different story for those with savings.
The average savings rate is currently 3.5%, which is 0.42% lower than this time last year and is expected to keep falling.
The Bank of England’s main job is to ensure the UK has a stable financial system, including keeping prices for goods and services used by households and businesses from rising too quickly.
The Bank has a target to keep that increase in prices – known as inflation – at 2%.
Inflation is currently 3.6% well above the Bank’s target rate – thanks in part to increased food prices.
Another aspect of the Bank’s remit to ensure the UK has a stable economy is monitoring the health of the jobs market.
Higher inflation affects business decisions, as it can increase operating costs.
This in turn can have an impact on hiring decisions, and recent figures show that the number of job vacancies has fallen, while the jobless rate has increased.
Businesses told the Bank that increases in National Insurance Contributions and the national living wage had added up to 2% to price rises, and they expected labour costs “to continue to push up food prices” through the rest of the year.
In order to mitigate those costs, businesses said they were having to cut staff.
The Bank said that a loosening in the jobs market would put some downward pressure on prices, helping to bring inflation down.
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