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The Bank of England is gearing up for a dramatic cut in interest rates this Thursday, bringing borrowing costs to their lowest in over two years. Financial experts forecast a reduction from 4.25% to 4%, marking the fifth cut since last August. This move comes despite a stagnant UK economy, which showed no growth in April and May.

 

While a lower base rate can reduce monthly mortgage payments for homeowners, it might also lead to diminished returns for savers. The central bank's decision coincides with concerns about a potential gap in consumer spending, with government responses possibly including tax hikes in the upcoming Autumn Budget. As the economy is scrutinised, the Office for National Statistics is set to release its report on economic performance from April to June next week. Earlier this year, the economy grew by 0.7% in the first quarter.

 

If the anticipated rate cut goes ahead, savings on mortgages could be significant. For instance, a typical £250,000 mortgage over 25 years may see monthly payments drop by around ฿1,760. However, savers will face dwindling returns, with rates potentially decreasing from 3.9% last August to 3.5%, as reported by financial experts Moneyfacts. Rachel Springall from Moneyfacts warns, "Savings rates are getting worse, and any base rate reductions will spell further misery for savers."

 

Despite inflation rates climbing above the Bank's 2% target, a cut is still on the cards. Inflation surged to 3.6% by June, driven by rising costs in food, clothing, and travel. However, the cooling employment market in the UK could influence inflation. Data reveals payroll numbers are dropping, job vacancies are lower, and unemployment rates are inching up. Growth in regular wage earnings, excluding bonuses, also slowed to 5% between March and May, adding pressure on employers adjusting to rising National Insurance Contributions and minimum wage increases, reported the BBC.

 

Readers are eagerly watching as the Bank of England navigates economic challenges. Interest rates impact multiple facets of financial life, from mortgages to savings. The Bank's forthcoming decision might balance inflation concerns with sustaining economic momentum, a challenging task as pressures mount both in the UK and globally.

 

  Adapted by ASEAN Now from BBC 2025-08-07

 

So will this affect the exchange rate, re make the pound weaker?

The UK economy is struggling, with zero growth between July and September 2024 and contractions of 0.3% in April and 0.1% in May 2025. A weakening jobs market and rising unemployment (4.7% annually between March and May 2025) prompted the rate cut to stimulate growth. However, rising inflation (3.6% in June 2025, expected to peak at 4% in September) and potential US trade tariffs add uncertainty. If investors perceive the UK economy as faltering, the pound could face downward pressure despite the short-term boost?

Why would lower interest encourage businesses to invest when no one can sell anything due to consumers having little to no money available? How are ordinary people supposed to save money if interest rates fall again? Gamble on stock markets, which many ordinary people do not understand?

Governments exist to spend tax money wisely on infrastructure and common services that take the weight off the shoulders of consumers. 

0.25%  hardly a "slash" is it even possible to alter it by a smaller amount?  

1 hour ago, mikeymike100 said:

So will this affect the exchange rate, re make the pound weaker?

probably, 

7 minutes ago, Purdey said:

Governments exist to spend tax money wisely on infrastructure and common services that take the weight off the shoulders of consumers. 

you appear to have missed out the word  "should" between "governments" and exist"    although the words "do not actually" would be equally appropriate