Key decision expected today 'almost certain' to be good news for home buyers
Borrowing costs are expected to ease further as the Bank of England prepares to slash interest rates for the fifth time in a year on Thursday, according to experts. The Bank's Monetary Policy Committee (MPC) is widely anticipated to trim the base rate by 0.25 percentage points to 4%.
This would represent the fifth cut since August last year, when rates began their steady descent from a peak of 5.25%. The move could provide relief for mortgage holders and prospective homebuyers, with hopes that more affordable deals will emerge if the Bank's base rate drops further.
Economists believe a cooling UK jobs market and sluggish economic growth may prompt the MPC to relax monetary policy. Official figures from the Office for National Statistics (ONS) revealed the UK unemployment rate climbed to 4.7% in the three months to May – the highest level in four years.
Meanwhile, average earnings growth, excluding bonuses, decelerated to 5% in the period to May, hitting its lowest point for nearly three years. Bank of England Governor Andrew Bailey indicated earlier this month that the Bank would be ready to reduce rates if the jobs market displayed signs of deterioration.
Additionally, ONS data demonstrated the UK economy shrank in both April and May, further pressuring policymakers to reduce borrowing costs.
Matt Swannell, chief economic adviser to the EY Item Club, described a 0.25 percentage point reduction on Thursday as "almost certain" given the "sluggish" economy. Recent survey data, closely monitored by economists, suggests that firms are struggling with higher labour costs and wider geopolitical uncertainty impacting investment plans, he said.
"With the MPC balancing signs of fragility in the labour market against evidence of lingering inflationary pressure, the committee will likely signal that further gradual interest rate cuts remain appropriate," Mr Swannell predicted.
Sanjay Raja, senior economist for Deutsche Bank, stated that the economy has been "weaker than the MPC anticipated" since it last published a Monetary Policy Report in May. The unemployment rate is slightly higher, wage growth has weakened, and redundancies have increased, he said.
However, he suggested the MPC will be "between a rock and a hard place", likely leading to a split vote within the nine-person committee. He predicts two members voting to keep the level at 4.25%, and another two opting for a larger 0.5 percentage point cut.
Other economists mentioned they will be watching out for any comments from the Bank about the future path for interest rate cuts, which is more uncertain given the balance of risks to the economy.
Some policymakers may be more concerned by recent inflation data, with prices rising at the fastest rate in 15 months in June. Rising food inflation has put pressure on the overall rate in recent months.
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Telegraph
2 hours ago
- Telegraph
The Bank of England has left Britain open to speculative attack
On Thursday, the Bank of England's Monetary Policy Committee (MPC) lowered the UK's main benchmark interest rate from 4.25pc to 4pc. This headline borrowing cost has now been cut five times since last August, falling incrementally from its post-Covid peak of 5.25pc. Had I been one of the nine MPC members, I'd have voted to hold the Bank's interest rate where it was. This cut was a significant error, further damaging the UK's policymaking credibility. I fear it will come back to bite us. Yes, the decision was close – the committee was split five-to-four. With the economy stalled, political and media pressure to try boosting growth via cheaper borrowing was intense. Kudos to MPC members who held firm. But this rate cut was so off-beam, so difficult to justify, that the strong impression has been created, again, that the MPC as a whole, far from being a highly-expert body collectively committed to keeping inflation as close to the 2pc target as possible, is dominated by careerist operatives ultimately serving their political masters. After the Covid pandemic, the MPC made countless errors throughout 2021, waiting far too long to raise rates, oblivious to looming price pressures. Inflation subsequently hit a 30-year high, before Russia's invasion of Ukraine in February 2022, with related energy-price fall-out then pushing prices even higher. UK inflation, again, is high and is rising. The consumer price index (CPI) increased 3.6pc during the year to June, up from 3.4pc the previous month. Headline CPI inflation has been consistently way above 2pc since last October – and shows no sign of falling soon. The National Institute for Economic and Social Research reckons inflation will rise even more over the coming months, remaining well above 2pc throughout 2026 – driven by food, utility and transport prices. Even the Bank of England just upped its forecast, saying CPI growth will hit 4pc this autumn. Yet the MPC cut rates regardless. So why can't I find a single compelling reason in the minutes of the MPC's latest deliberations why the majority of members think price pressure will ease anytime soon, let alone fast enough to justify dropping rates, when headline inflation, on the Bank's own figures, it's about to be double the official target. Wage growth remains elevated at 5pc-plus, which will keep driving inflation. Trade tensions and other global supply chain issues pose further upside risks. Stand-offs in the Middle East and Russia/Ukraine remain highly unpredictable. We could yet endure spikes in the price of oil, gas, grain and/or fertiliser, the soaring costs of which saw inflation peak at over 11pc in the autumn of 2022. Yes, the UK economy is slowing – but the traditional view that MPC rate cuts energize household spending via lower mortgage rates is outdated. Depleted home-ownership among young adults means just a third of households have a mortgage these days – and around 90pc of those are on fixed rates. Any immediate consumption boost will be marginal. Anyway, the MPC's job is to focus on inflation. There is no 'dual mandate' to target both prices and output, as at the US Federal Reserve. That's because the pound, unlike the dollar, isn't the world's reserve currency. Since mid-June, in fact, as data showing GDP contractions in both April and May has emerged, sterling has dropped around 1.5pc against the dollar and 2.5pc against the euro. Thursday's rate cut could soon weaken the pound more, pushing up inflation via higher import prices – an ongoing danger in the UK, now a heavy net-importer of both energy and food. Following the MPC's announcement last week, the Labour party put a graph on social media showing incremental rises in the Bank of England's policy rate during 2022 and into 2023 'under the Tories', compared to five rate cuts 'with Labour' since the party took office in July 2024. 'Speaks for itself' was the headline. It certainly does – illustrating a woeful lack of judgement regarding economic policymaking. The Bank of England is supposed to be independent – and at a time when the UK's monetary policy regime is under extreme scrutiny, with financial markets already furrowing their collective brow as to why the central bank of a nation with easily the highest inflation in the G7 is cutting rates, it is deeply damaging for the Government to then claim credit for the Bank's rate cuts. On top of that, a major reason inflation remains high is the Government's own policies. Labour's higher employer national insurance contributions and above-inflation minimum wage increases have sent business costs soaring – which are being largely passed on to consumers. Far from borrowing costs coming down under Labour, as the party claims on social media, the interest rates that really count – those dictated by financial markets – have been moving entirely in the opposite direction. The UK's 30-year gilt yield was 5.32pc on Tuesday, prior to the MPC's announcement. At the time of writing, it is 5.43pc – significantly higher, despite the Bank's cut. Since last July, Government borrowing costs have gone through the roof, even though the Bank's 'policy' rate has been moved entirely in the opposite direction – a sign of growing financial instability. So the MPC's unjustified rate cut, far from lowering economy-wide borrowing costs, has pushed them up further, as financial markets sense panic amongst policymakers and dismiss official claims inflation will soon be subdued. Over the coming months, as Labour's fiscal management falls to pieces, with spending and borrowing spinning even further out of control, yields will almost certainly rise even more. And as these market rates and the Bank's policy rate continue to move against each other, the gap between them getting wider, that signals trouble, making our sovereign debt and currency more vulnerable to speculative attack.
Times
10 hours ago
- Times
How to kick the cash habit and pick a stocks and shares Isa
The chancellor, Rachel Reeves, wants more of us to reap the rewards of investing but many savers just do not want to invest or do not know where to start — now is a good time, though. Last week the Bank of England cut the base rate to 4 per cent, the lowest it has been since March 2023. Where the base rate goes, cash Isa rates tend to follow — so how can savers missing out on the stock market make the jump? Here, Money explains why a stocks and shares Isa might work for you, how to pick one and how to start investing. Savers ploughed more than £41.6 billion into cash Isas in the 2022-23 tax year, compared with £28 billion into the stocks and shares equivalent. Reeves thinks cash savers are missing out on better long-term returns. The chancellor's reforms, described as the 'widest-ranging' in a decade, will give banks and financial firms powers to push savers towards the stock market. Risk warnings will be watered down, while a government-backed advertising campaign will sell the benefits of investing. Reeves is also understood to be pondering a shake-up of the Isa rules in her autumn budget, and could slash the cash Isa annual allowance to incentivise more people to use stocks and shares Isas instead. Every adult has an annual £20,000 allowance to invest in an Isa every year, with all returns free of income tax and capital gains tax. • All we have in common is our love for the cash Isa Typically offered by banks or investment platforms, such as Hargreaves Lansdown or AJ Bell, stocks and shares Isas allow you to invest in shares, funds and bonds. Unlike cash Isas, which offer a guaranteed interest rate, stocks and shares Isa are invested in the stock market, which is more volatile. This means there is a chance of losing money, but it should bring you higher returns in the long run. Despite this, most people tend to opt for the cash Isa, seeing it as a safer home for their savings. In 2022-23, 7.8 million savers put money into a cash Isa account, more than double the 3.8 million who invested in a stocks and shares equivalent. Jason Hollands, from the investment platform Bestinvest, said: 'While cash savings may seem secure, there is a risk that if you get a low return that doesn't keep pace with inflation, you will be worse off in real terms. 'Investment in the stock market over a reasonable time horizon, at least five years, has nearly always provided better returns than cash savings.' There are many things to consider when deciding on which investment platform to hold your Isa with. The range of investments on offer, the information provided, the fees and how easy the platform is to use all vary significantly. The independent comparison site Investing Insiders has rated 45 of the biggest stocks and shares Isa platforms across ten categories, including fees, ready-made portfolios and customer service. Its top pick overall for a stocks and shares Isa is Invest Engine, which scores five out of five on its rating system. Antonia Medlicott from Investing Insider said: 'This is the lowest-cost Isa on the market, and there's a fully managed option available, as well as DIY investing with zero account fees. It's a nice app, and past performance figures on their managed portfolios is strong.' AJ Bell is the second pick, with Medlicott commending the wide range of markets available. XTB is rated third because of its low price, excellent investment options, and the fact that you can earn 4.5 per cent interest on uninvested cash. • The cheap and easy way to invest (without the risk) Costs are key when it comes to choosing where to put your money, because platforms often charge a management fee, usually a percentage of your pot each year. Some have no fees at all and others charge as much as 1.5 per cent of what you hold. Investing Engine is the cheapest platform as of January this year, according to Investing Insiders, charging no fees at all. Trading 212 is next cheapest, with investors having to pay £30 in fees on a £20,000 Isa allowance where they invest all of it in a one-time stock trade in UK or non-UK stocks. 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Medlicott said: 'Banks can suit some investors, but you'll usually get more choice with a specialist platform. For simple fund investing through an Isa, your bank may be fine — just watch out for hefty foreign exchange fees on international trades.' Some funds provide a flat fee for investors, which can be attractive for those with bigger pots, as percentage fees on large portfolios can add up. Analysis by Kepler found that if you invested £50,000 in funds growing at 10 per cent a year into a platform that charges no fees, your portfolio would be worth £336,000 after 20 years. If that investment was on a platform charging 0.45 per cent, your return would be £30,000 less. • Banks to push cash savers towards investing Ed Monk from the investment platform Fidelity said: 'Cost is really important when it comes to picking your platform because investors will have to pay something whether their investment goes up or down, and fees can make a big difference over the long run. 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Saxo was second at 26.4 per cent, with AJ Bell third at 23.6 per cent over the same time. • Read more money advice and tips on investing from our experts If you are more keen to take control of your investments and have the time, a DIY stocks and shares Isa could be a good option. This is simply an investment account within an Isa account wrapper, which gives you the freedom to invest in whatever you want. These are usually more popular with more experienced investors as they allow you to buy funds and pick stocks within your Isa wrapper. 'I would put AJ Bell or Trading 212 as my top picks for DIY stocks and shares platforms — they are both well priced and provide a good choice of assets,' Medlicott said. For Laith Khalaf, from AJ Bell, the most essential thing is to get your money into an Isa, particularly in the present climate. He said: 'When you look at taxes rising everywhere else, to have this oasis of tax protection is incredibly valuable.'
Daily Mail
12 hours ago
- Daily Mail
HAMISH MCRAE: We can fight inflation - here's how
Stand by for another surge in inflation. It will happen here and we have a poor record on it compared with the rest of the developed world. But this is a global thing, not just a British one, and we have to arm ourselves against it. We had a glimpse of our own future last week. The Bank of England expects inflation to rise through the autumn and it looks as though it will hit 4 per cent in October, double its target. Indeed inflation will probably stay above target right through next year and beyond. So what does the Bank do? It cuts interest rates. True, there were four sensible members of the Monetary Policy Committee who voted against the cut and it looks like there will be no further cuts this year. I still expect the next movement to be up, not down, though so far I have been ahead of the market on that. It's not all the fault of the Bank. Much of the blame lies with the Government. Whatever you think about the rises in living wage and National Insurance contributions the fact is they have increased costs, particularly for supermarkets and the hospitality industry. Food prices are 4.5 per cent up on the year, and look like rising further through the autumn. The combination of the Government's net zero and other environmental policies adds 16 per cent to a typical household's electricity bill. That's from a House of Lords study this year. Governments may want to follow these policies but they need to be honest about their impact on inflation and hence on living standards. The UK has become an outlier on inflation, but we seem likely to be joined by the US, which matters vastly more for the world. There's the whole business about Donald Trump's attacks on the chair of the Federal Reserve, Jerome Powell, and who he might appoint to succeed him. We can assume that, whoever it is, the US will have looser monetary policies next year. More immediately there is the effect of tariffs, which put up prices not just in America but everywhere. We don't know by how much, because the tariffs are only just coming in, but we do know that anything that gums up global trade raises costs. We all pay for that in higher inflation. So what's to be done? Here there's a glimmer of hope. It's competition. Politicians don't really care about price rises; they say they do, but they don't. Central banks everywhere have underestimated the danger of the resurgence of inflation, and now are, with the possible exception of the European Central Bank, too weak to take the steps needed to crush it. But the private sector can and must help. An example. You may have noticed a story last week that Lidl has replaced Aldi as Britain's cheapest supermarket. We're supposed to be good at retailing, Napoleon's jibe that we were 'a nation of shopkeepers' and all that. But it has taken two German-owned groups to revolutionise our food distribution. Go into Tesco and the signs have a little tick and say Aldi Price Match. They don't say Sainsbury's price match, though that's number two behind it in sales. It's foreign competition that is taming our shopping bills. There's the challenge: to use our power as consumers to squeeze down inflation. If a restaurant imposes an extra charge on a meal, or pads its prices, go elsewhere. If an energy supplier ups the electricity bill, find another. The same goes for other services. If your bank cuts the interest rate on savings, move your cash elsewhere. And so on. It's an attitude to apply to taxation, too. If, as I expect, the Chancellor raises fuel duty and other taxes in the autumn, you follow the incentives. If that means driving (or drinking) less, so be it. We have already seen a response to higher taxation in capital gains tax revenues since the last Government cut the tax-free limits. Many people decided not to take the hit, held on to their assets instead and revenues fell by 18 per cent in the 2023-24 tax year. Ultimately it is not in our power to control inflation. If Government policies push it up and the Bank of England fails to curb it, then it's ordinary people who are hammered. But we can fight back and must do so in the months ahead.
