Have you noticed higher borrowing costs or better returns on your savings recently?
The Bank of England (BoE) increased the base rate 14 times from December 2021 to August 2023, keeping it at a 16-year high of 5.25%. Higher interest rates can curb inflation by encouraging saving over spending. Despite inflation hitting the government target of 2% in May 2024, the BoE has maintained the base rate, though a cut might happen in August, according to the BBC.
So, what does a potential rate cut mean for you?
1. Lower Returns on Cash Savings
Recent high interest rates have benefited savers, but a base rate cut could lower returns. To counter this, consider shopping around for better rates, locking money in high-interest fixed-rate bonds, or using tax-efficient ISAs. Investing in longer-term investments such as stocks and shares might also offer better long-term returns.
2. Potential Boost for Your Investment Portfolio
A rate cut can boost market optimism, making borrowing cheaper and encouraging business growth and consumer spending. This could lead to higher stock prices, benefiting your investment portfolio.
3. More Affordable Mortgage Repayments
A lower base rate could reduce your mortgage payments, especially if you have a tracker or variable-rate mortgage. Fixed-rate mortgage holders won’t see immediate changes but could secure better deals when remortgaging.
