Bank of England August rate cut 'unlikely' as new government faces 'uphill struggle' to boost UK economy

With more shoppers returning to high streets and construction work recovering, the rebound was more positive than had been predicted.

Analysts had predicted 0.2 per cent increase.

The Bank of England have been holding interest rates at a 16-year-high of 5.25 per cent since August 2023.

The central bank has been widely predicted to launch its first cut since 2020 at the August meeting.

However, experts have suggested rate-setters could now be assessing whether the potential rate cut may be pushed back further.

Suren Thiru, economics director at The Institute of Chartered Accountants (ICAEW) said: “These figures confirm a robust rebound in economic activity as stronger services and construction output helped return the economy to growth.

“May’s GDP uptick may well have been followed by a June washout, with wet weather likely to have stifled output from key sectors of the economy, despite a helping hand to hospitality and some retailers from Euro 2024.

“Longer-term, the new government faces an uphill struggle to achieve its ambition to significantly uplift the UK’s growth trajectory, unless it can substantially increase productivity and tackle economic inactivity.

“These GDP figures may make an August rate cut less likely by providing those rate setters, who are concerned about underlying price pressures, with sufficient confidence about the UK’s economic recovery to continue putting off loosening policy.

Responding to yesterday’s figures, Chancellor Rachel Reeves said: “Delivering economic growth is our national mission, and we don’t have a minute to waste.

“There’s a lot more to do. But I’m determined to fulfil that number one mission of this incoming Labour Government to grow our economy and create good jobs right across the UK.”

In anticipation of a potential rate cut, major lenders have been cutting the interest rates on their mortgage deals to offer homeowners some relief.

Barclays is cutting selected fixed rates for residential purchase and remortgage by up to 0.33 percentage points.

The latest reductions will push Barclays five-year purchase fixed-rate to the top of the best buy tables with a rate of 4.09 per cent (60 per cent loan to value) with an £899 fee. Barclays Premier banking customers can secure the same deal at a rate of 4.08 per cent.

Barclays has also slashed remortgage rates and is offering two-year fixed rates from 4.70 per cent (4.67 per cent for Premier banking customers) with a £999 fee (60 per cent LTV) and equivalent five-year rates from 4.36 per cent (4.31 per cent for Premier customers).

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Accord, the specialist lending arm of Yorkshire building society, has cut selected residential fixed rates by up to 0.25 percentage points.

The largest reductions are on deals for borrowers with a 10 per cent deposit (90 per cent loan to value). The lender is offering a five-year fixed rate for home purchase at 90 per cenr LTV at 5.14 per cent with a £995 fee.

First Direct has cut selected two, three and five-year fixed rate deals for purchase by up to 0.17 percentage points.

The direct-only lender is offering a five-year fixed rate for home purchase at 4.31 per cent with a £490 fee.

This is for borrowers with at least a 40 per cent cash deposit towards their property purchase (60 per cent LTV).