Bank of England Cuts Interest Rate to 4.75%
What It Means for Businesses and Mortgage Holders
n a much-anticipated move, the Bank of England has reduced the base interest rate by 0.25%, bringing it down to 4.75%. This marks the second rate cut in autumn, coming just after high-tax, high-spend announcements in the government’s latest Budget. The decision, supported almost unanimously by the Monetary Policy Committee (MPC), saw an 8–1 vote in favor of lowering the rate. For mortgage holders and businesses, this rate cut offers a measure of relief, even as economic challenges remain.
A Vote of Confidence Amid Fiscal Tightening
November’s rate cut follows the committee’s September decision to hold the base rate at 5%. Notably, only one committee member dissented, voting to maintain the current rate of 5%, mirroring the divide seen in previous votes. With the base rate now at its lowest level since August 2006, the Bank of England appears committed to a cautious but steady path of easing interest rates.
Economic advisor Joe Nellis, from MHA, notes that “Last week’s Budget may well have thrown a spanner in the works concerning interest rate policy going forward, but the Bank of England has remained committed to their rate-cutting plan – for now.” The sentiment reflects a balancing act between supporting economic growth and countering inflationary pressures, with many predicting that a further rate cut in December is unlikely.
Implications for Mortgage Holders
For mortgage holders, the reduction in the base rate is welcome news. After months of higher rates, the gradual easing should alleviate some of the financial pressure facing homeowners with variable-rate or adjustable-rate mortgages. The Bank of England’s commitment to gradually lowering rates suggests it is prioritizing financial stability in a cautious way that could foster confidence in the housing market.
Businesses Face New Cost Pressures Despite Rate Cut
However, for many businesses, this rate cut may do little to offset incoming financial burdens. Mark Barrie, head of debt advisory at Azets, points out that “Businesses know the cut is unlikely to bring any meaningful financial relief because of new cost pressures coming down the track.” Indeed, firms are bracing for higher employer national insurance contributions beginning in April 2026, along with anticipated increases in the national living wage and the forthcoming Employment Rights Bill, which could raise operational costs across sectors.
The recent Budget announcements have created a tricky environment for the Bank of England, as high public spending could fuel inflation, putting upward pressure on prices that counteracts the effects of rate cuts. Barrie humorously notes that “The last time the UK had an official base rate of 4.75% was 18 years ago in August 2006, when a number one UK chart hit was ‘I Don’t Feel Like Dancin’’ by the Scissor Sisters – and that title aptly reflects the mood of many businesses right now.”
Economic Forecasts and Inflation Expectations
While the BoE’s rate cut could support a softer economic landing, inflation pressures remain. CPI inflation, currently at 1.7%, is expected to rise to around 2.5% by year-end, driven by the diminishing effect of energy price weaknesses from annual calculations. Growth, meanwhile, is projected to maintain a steady pace of about 0.25% per quarter.
The MPC also anticipates a gradual loosening of the labor market, despite it remaining historically tight. However, this easing may be a double-edged sword for some sectors, as employers may face increased challenges in attracting talent amidst rising costs. The next MPC meeting on December 19 will likely provide further insights into the committee’s approach, particularly as it balances the challenges posed by fiscal expansion and inflation concerns.
The Bottom Line
While the Bank of England’s latest rate cut offers some reassurance to mortgage holders, businesses may find the benefits limited. Faced with a range of new costs, firms across the UK may continue to experience financial strain despite the BoE’s easing stance. As the economic landscape remains volatile, the Bank of England’s gradual approach may provide a sense of stability, even as businesses and individuals grapple with the reality of higher costs in 2024.
