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Andrew Bailey, the Bank of England’s governor, has previously said “we are on the way” to a first interest cut amid fierce speculation of whether it could be on Thursday or at the next rate decision meeting in September.<\/p>\n
The base rate set by the Bank is closely followed as it dictates the rates set by High Street banks and money lenders. <\/p>\n
Interest rates were hiked in a bid to combat the pace of price rises, known as inflation, which has hit households and businesses hard in recent years.<\/p>\n
High rates have led to people paying more to borrow money for things such as mortgages and loans, but savers have also received better returns.<\/p>\n
If the Bank decides to cut rates on Thursday, rates on mortgages and savings could shift.<\/p>\n
More than half a million homeowners have a mortgage rate that “tracks” the Bank rate. A 0.25% cut could take their monthly repayments down by around \u00a328 on average.<\/p>\n
Anyone with a standard variable rate mortgage could see a \u00a315 benefit.<\/p>\n
Private rents are at a record high. In theory, lower mortgage costs for landlords could be passed down to tenants.<\/p>\n
However, on the flip side, some savers are getting a fairly good deal which could become a bit less lucrative after the decision at midday.<\/p>\n
Anyone with a loan or credit card debt could see their interest rates get a bit cheaper.<\/p>\n
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said Thursday’s rate decision was “on a knife edge”.<\/p>\n
Although a few weeks ago markets were betting on a 50\/50 chance of an August rate cut, they now think that probability is 60\/40, she added.<\/p>\n
“If they leave it too late, it could be a more difficult September,” she said.<\/p>\n
She added expected rates cuts, when they come, to be “slow and steady” after being on hold for “a significant amount of time”.<\/p>\n<\/div>\n
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Policymakers face a balancing act when setting rates.<\/p>\n
By making borrowing more expensive, the Bank hopes to encourage people to cut back on spending which in turn leads to demand for goods falling and price rises easing.<\/p>\n
But if they keep them too high for too long, they risk stifling economic growth as businesses hold off on investing in production and jobs.<\/p>\n
Russ Mould, investment director at AJ Bell, said the Bank was in effect deciding the price of money in up to two years time – for people on two year mortgages – as well as the price more more immediate borrowing such as credit cards.<\/p>\n
“My guess is when they do start to cut, they’ll cut much faster,” he said. “They don’t want to squeeze too hard to keep inflation in its box.”<\/p>\n
He said economic indicators such as reduced job vacancies and a higher unemployment rate could prompt the Bank to cut rates.<\/p>\n
On the other hand, policymakers will be looking at the pace of rises in the price of services, and “sticky” wage inflation, which could cause them to hold off on a cut, he added.<\/p>\n<\/div>\n
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