6 February 2025
If you are covering the latest Bank of England interest rate decision and its impact on personal finances, please see the following comment from Holly Tomlinson, financial planner at Quilter:
Mortgages
"Ahead of the Bank of England’s decision, lenders were already making changes. Lenders have proactively reduced rates on various mortgage products in anticipation of the Bank of England's decision. Now that the rate cut is in place, homeowners on variable or tracker mortgages should start noticing lower monthly payments too. We may see some lenders introduce more competitive fixed-rate deals in the coming weeks but typically most new deals have already priced in today’s cut.
Savings
"While the news is good for borrowers it is less good for savers as lower rates usually mean lower returns on deposits. Banks and building societies have historically been slow to pass on rate increases to savers but tend to be much quicker in reducing rates following a base rate cut. There are still some savings accounts offering competitive rates above 5%, but these may not last long. Savers should consider locking in higher rates where possible and exploring alternative options such as fixed-term accounts to secure better returns. For those saving for the long-term opting to invest your money has historically produced higher returns. However, investing does come with added volatility and therefore is only suitable for those with the right risk appetite and investment horizon.
Annuities
"Annuity rates are closely tied to government bond yields, which can be affected by interest rate changes. A reduction in the base rate may lead to lower bond yields, potentially resulting in less favourable annuity rates for retirees. Those approaching retirement should seek financial advice to assess the best timing for purchasing annuities and consider alternative retirement income strategies where appropriate.
Credit cards
"Lower interest rates could lead to a slight reduction in APRs on credit cards, making borrowing slightly less expensive. However, credit card rates are determined by multiple factors, and lenders may not fully pass on the rate cut. Borrowers should review their existing credit arrangements and explore balance transfer options to take advantage of lower-cost borrowing where available.
Debt
"If you’ve got a personal loan or other debts, you might get a bit of relief as interest rates drop, making it cheaper to borrow and easier to pay off what you owe. This environment presents an opportunity to pay down existing debts more efficiently or refinance at more favourable rates. Those carrying significant debt should use this opportunity to reassess their repayment strategies and potentially consolidate higher-interest debt.
Economic context
"The Bank of England's decision comes against a backdrop of slowing economic growth but more steady inflation. Meanwhile, the global outlook remains uncertain, particularly with Donald Trump’s return to the White House sparking concerns over renewed trade wars. If tariffs increase and global tensions rise, inflationary pressures could be reignited, potentially complicating the Bank of England’s ability to maintain lower interest rates in the long term. For consumers, the interplay between monetary and fiscal policy underscores the need for careful financial planning in the months ahead."
