November 2024 Interest Rate Cut: What It Means for Your Finances

November 2024 Interest Rate Cut: What It Means for Your Finances

As many of you are aware, the Bank of England (BoE) made a significant move yesterday with an interest rate cut, following last week’s Budget announcement. For many, this is welcome news, but it's important to understand the broader context and implications of this decision for the UK economy and for your personal finances.

The Last Rate Cut of 2024?

The decision to reduce rates is expected to be the last of 2024, based on the BoE's outlook. This marks the culmination of the current tightening cycle, but that doesn’t mean we’re out of the woods yet when it comes to managing inflation. The BoE Governor has warned that inflation could rise again in the short term, driven by higher energy costs and persistent price inflation in the services sector. There's also caution surrounding the recent Budget, with some concerns that the fiscal policies outlined by Labour could add additional upward pressure on inflation in the coming years. Specifically, increased government spending and a rise in National Insurance contributions could push inflation up by as much as half a percentage point over the next two years, making life more expensive for consumers.

Pound's Response: A Modest Boost

On a more positive note, the pound saw a boost following the interest rate cut. It rose by 0.4%, reaching 1.293 US dollars. This reflects the BoE’s more cautious inflation outlook, though it’s not yet clear how long this positive momentum will last, especially given the wider economic pressures.

Impact on Mortgages: A Double-Edged Sword?

So, what does this rate cut mean for your mortgage? As many will know, mortgage rates have been rising since the Autumn Budget and the US election. The recent cut could provide some relief, especially for those on tracker mortgages. If you’re on a variable or discounted rate, you might see some drops as well, but these reductions may not be as significant or as immediate.

However, it's worth noting that while the immediate effect of the rate cut might be positive, the overall trajectory for mortgage rates is less clear. The market is pricing in fewer rate cuts between now and the end of 2025, which could mean that mortgage rates won’t drop as quickly or as significantly as some might hope. In fact, this could lead to some repricing in the mortgage market that might have an adverse effect, particularly if inflation remains stubbornly high.

Economic Uncertainty: Inflation, Risks, and the Budget

Despite today’s rate cut, it’s important to remember that inflation is still a significant concern. In September, inflation fell below the BoE’s 2% target for the first time in three years, but experts are already predicting that October’s numbers could paint a different picture. The continued pressure on inflation from the Budget policies and rising global risks—such as the possibility of new US tariffs—means that any further rate cuts are likely to be more modest than previously anticipated. Suren Thiru, Economics Director at ICAEW, notes that even with further interest rate reductions on the horizon, inflationary pressures could limit the scope for aggressive loosening of monetary policy.

The Road Ahead: Patience Is Key

The general consensus among economists is that we’re in for a period of "patience." The BoE has stated that monetary policy will need to remain restrictive for the time being, with rates staying higher than we’d like until inflation can be fully brought under control. Until inflation stabilizes at the 2% target, we’re unlikely to see significant reductions in interest rates, and borrowing costs will remain a concern for the foreseeable future.

What Does the Budget Mean for Inflation?

The independent Office for Budget Responsibility (OBR) has also weighed in, warning that the Budget’s measures are expected to add 0.4 percentage points to inflation at their peak effect in 2026. While the Budget won’t necessarily ignite runaway inflation, it does mean that inflation might remain higher for longer than previously anticipated.

Key Takeaways

In summary, while yesterday's interest rate cut brings some short-term relief, the longer-term outlook remains uncertain. The cost of borrowing, especially mortgages, is still a concern for many, and we’ll need to exercise patience as the economic landscape evolves. The BoE's caution, the impact of the Budget on inflation, and external global risks all contribute to a complex financial environment.

As always, we recommend staying informed about the latest economic developments and consulting with a financial advisor to ensure you're making the best decisions for your specific situation. While the road ahead may still be bumpy, there are opportunities to navigate it wisely with the right strategies in place.

If you’re a landlord interested in switching to a guaranteed rent model and moving away from the challenges of traditional AST lettings, or an agent looking to partner up with Apex to offer your landlord's the simplicity of guaranteed rent, don’t hesitate to get in touch. You can reach us at lettings@apexhousingsolutions.co.uk or by calling 0203 030 4241.