Bank of England Cuts Interest Rates to 4%

Bank of England Cuts Interest Rates to 4%

The Bank of England has lowered interest rates to 4%, the lowest level in over two years, in a bid to support the economy as inflationary pressures begin to ease. The reduction from 4.25% marks the fifth rate cut since last August.

While the move was widely expected, the vote was notably divided. Five of the nine Monetary Policy Committee members supported the cut, while four dissented, including one who advocated for a larger 0.5% reduction. The Bank acknowledged that inflation remains above its 2% target but highlighted signs of disinflation, particularly as the effects of last year’s energy price surge continue to fade.

What does this mean for consumers?

Lower interest rates reduce borrowing costs on mortgages, loans, and credit cards, easing financial pressure and making homeownership more attainable. With smaller repayments, households often have more disposable income, which can boost spending and help stimulate the economy. This often creates a supportive backdrop for equity markets, as stronger consumer demand and reduced corporate financing costs tend to bolster earnings, which can - in turn - lift share prices.

What does this mean for investors?

- Equities: Cheaper borrowing costs can boost business investment, consumer spending and corporate earnings, which often contribute to stronger equity performance.

- Fixed Income: Falling interest rates typically lead to higher bond prices, especially for longer-dated bonds. This is because their fixed interest payments become more attractive relative to the lower yields available on newly issued bonds. In a declining rate environment, the relative appeal of these fixed payments also increases compared to cash, which tends to generate lower returns.

- Cash: Yields on cash savings and deposit accounts are likely to decline, as banks typically adjust rates in line with the Bank of England’s base rate.

Our Liquidity Portfolio Service

In a declining interest rate environment, traditional savings accounts typically offer diminished returns. For investors seeking low-risk yields, our Liquidity Portfolio Service may be a suitable option. The liquidity portfolio is designed to maximise returns by investing in money market funds, keeping your cash actively deployed and generating competitive yields (often higher than those available from standard deposit accounts).

Investments can go down as well as up in value. Monies held in liquidity funds are considered low risk and when held within a portfolio management service (the investment is covered by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person). Past performance is not a reliable indicator of future performance.