Bank of England slashes interest rates to 5%: 'Relief for mortgage borrowers!'

The Bank's Monetary Policy Committee voted to slash the base rate at its current level after this target for the consumer price index (CPI) being reached.

During the meeting earlier today, the MPC voted by a majority of five-to-four to reduce interest by 0.25 percentage points.

However, four members of the group voted to maintain bank rate at 5.25 per cent.

Prior to the Bank's announcement, analysts had said the committee's vote was on a "knife edge" due to contrasting opinions between the members.

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The MPC cited that higher rates have been a contributing factor to easing the CPI rate but warned that inflation is likely to rise temporarily.

It stated: "We need to make sure inflation stays low. We will not cut rates too much or too quickly."

According to the committee, "external shocks" to the economy have subsided for the time being and progress has been made in preventing persistent inflation problems.

However, what does today's decision mean for your mortgages, pensions and savings?

What does the Bank of England interest rate cut mean for mortgages?

Mortgage borrowers and people in debt have been most adversely impacted by the Bank of England's decision-making regarding the base rate.

Hiked interest rates has resulted in monthly repayments skyrocketing for households during the cost of living crisis.

Professor Joe Nellis, an economic adviser to MHA said: "Not only will this news be welcomed by mortgage borrowers but will be warmly greeted by the new UK government as they embark on their pursuit of growth and the revitalisation of the economy, particularly in light of the recent IMF warning that the UK economy will need to grow at three times the current rate to ensure that Labour can fulfil both its spending commitments and its promise to not raise taxes.

“We think another cut will follow – probably in December – with a rapidly improving economic picture which will be a welcome relief for borrowers in the lead up to Christmas, although the Bank of England looks to rebuild its credibility by not taking its foot off the brake too quickly, having been criticised for being too slow to raise interest rates in 2022 as inflation took off.”

What does the Bank of England interest rate cut mean for savings?

Despite mortgage holders being hit hard by the central bank's recent action, savers in Britain have benefited greatly over the last two years. High street banks and building societies, including Nationwide, have offered customers interest rates on savings accounts of up to eight per cent.

Kevin Mountford, the co-founder of Raisin UK, warned that this era of sky-high savings rates will soon be coming to an end.

He said: "Any individuals with savings or pension pots should consider locking in any market-leading rates on longer terms immediately, as this will prompt reductions across the market, leading to lower interest earnings over time.

While today's rate cut eases consumer pressure, it may still be some time before we see significant relief for household finances. We shouldn't expect borrowing costs to decrease as rapidly as they increased, and we may see one more cut before the Chancellor's Budget announcement in October.2

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What does the Bank of England interest rate cut mean for your pensions?

While pensions are not directly affected by today's rate reduction, experts are urging those approaching retirement to exercise caution.

My Pension Expert's policy director Lily Megson added: "As conditions start to stabilise, many will be eager to get their savings goals back on track. But it’s key not to make any hasty decisions.

"For instance, some might be tempted to quickly buy an annuity, as annuity rates may fall in response to the lower interest rates. However, such decisions should always be made with careful consideration.

"Creating economic stability is vital, but equally important is supporting individuals in their financial planning. Savers need to be informed and cautious – providing access to financial education and advice to respond to these changes effectively and secure their financial futures should be the top priority for the government."