Money blog: Major boost for homeowners as interest rate finally cut - here's what it means for mortgages (2024)

Here's a round up of some other consumer news that's been happening while our focus has been on interest rates...

US fast food giant Taco Bell is expanding the use of artificial intelligence to take orders at hundreds of its drive-thrus.

The voice AI system - which interprets customers' orders based on voice recognition - has been in development for more than two years.

The Mexican-themed chain is already operating the system at more than 100 sites across 13 US states.

TalkTalk is likely to default on its debts, a ratings agency has warned.

The broadband provider has been moved from a "substantial" credit risk to a "very high level" risk after the ratings agency Fitch cut the company's credit rating.

The company has two repayment deadlines in November and February last year and owes £1bn to lenders.

Earlier, reports emerged that TalkTalk founder Sir Charles Dunstone was trying to finalise a £200m lifeline as the company tries to avoid a collapse.

A mattress company has agreed to change its sales practices after the Competition and Markets Authority (CMA) said it misled customers about price reductions and put unfair pressure on them to make quick purchases.

The company has now signed formal commitments known as undertakings. It has committed to action, including:

• Genuine discount claims: Simba Sleep will ensure any "was" price is genuine - in other words, that they actually sell a sufficient volume of the product at that price before using it as a "was" price;

• Countdown clocks:Simba Sleep will ensure that any countdown clocks used on its websites are clear, specify prominently which products they apply to, and do not give consumers a false impression that they must act quickly (or that when the clock ends the product will revert to the "was" price) if this is not the case.

There's good and bad news for the chancellor in today's interest rate cut, analysts have suggested.

The cut has been possible because inflation has fallen to target 2%. Rates are elevated to discourage spending and encourage saving - when this happens, price rises tend to slow.

Laith Khalaf, head of investment analysis at AJ Bell, says the cut to 5% "marks a significant victory in the fight against inflation", but there's still some way to go.

Most importantly, "we haven't spun off into an inflationary cycle like in the 1970s", he says, meaning Rachel Reeves can breathe somewhat easy on that front.

"But inflationary pressures are still lurking. The energy price cap is expected to rise this winter, public sector pay agreements might push up prices, and a second Trump presidency in the US could stoke further global inflation through tax cuts, tariffs, and tough immigration controls," he says.

"The bad news for Rachel Reeves is the Bank of England reckons economic growth will remain limp, with GDP growing by just 0.8% over the next year," Mr Khalaf says.

He caveats that by noting that the Bank is not well known for optimism in projections.

"This is evidenced by the fact the Bank has just upgraded its forecast for economic growth over the last 12 months to 1.5%, from 0.5% only three months ago."

Many of you will know that while today's decision is great news for those with a mortgage, it's not so good for savers.

That being said, the cut today may not do as much damage as some may fear.

We spoke toMark Hicks, head of active savings at financial services firm Hargreaves Lansdown, to explain why...

"A rate cut is never going to be music to the ears of savers, but this shouldn't do too much damage - the market was split on whether we were going to get a cut, so decisive action from the Bank of England is going to mean some banks bring rates down slightly, especially among easy access accounts, but we're not expecting massive movements," he says.

He says what really matters is what happens around expectations of rate cuts in the future.

"If the Bank of England decides to cut rates twice and then pause, we should see minimal disruption to the savings market," he says, but "more consistent rate cutting of four or more would drive greater savings rate change".

What savers should be looking at

As it stands, the market is currently not predicting any significant falls for savers.

"At the moment, the highest easy access rate and one-year fixed rate accounts still pay over 5%, so savers can still beat inflation by an impressive margin," Mark says.

The highest easy access rate on HL Active Savings is 4.67% and the highest fixed rate is 5.06%, he adds.

"When you add in the effect of the current cashback deal, this takes it to 5.26%."

Mark says if you don't need the cash for a while, fixed term rates offer the best returns from a risk reward perspective, "so it's worth securing a rate by considering a fixed rate deal while these rates last".

Money blog regular David Hollingworth, associate director at L&C Mortgages, has taken a look...

Tracker rates

Those on tracker rates will feel the most direct and immediate benefit. The mortgage rate is directly pegged to base rate so will naturally reflect the cut in base rate. You should receive confirmation of when that will come into effect and the new payment in due course.

Trackers have remained a relatively niche part of the market as base rate has held firm until today. I don't expect to see a sudden shift toward trackers but if the door opens to further cuts we may start to see more interest in base rate trackers as we head into next year.

[Editor's note: Hargreaves Lansdown forecast a saving for those on trackers of £28 per month. There are around half a million such households.]

Variable rates

There's also some potential relief for those on standard variable rate. These are not directly linked to base rate but the hope will be that lenders will pass through the full cut to SVR, even though they are not obliged to do so. We've already seen Santander announce that it will be cutting the SVR.

This has potential benefits for all borrowers as lenders will often stress their affordability based on a rate above their SVR. If SVR eases it should help to temper the stress rates as well, which could give a little more leeway on the amount lenders can offer.

Fixed rates

Fixed rates are where the majority of borrowers have been heading. Rates have already been edging down with small but frequent cuts helping to nudge five-year deals close to and even under 4%.

Today's decision to cut a little sooner than many had previously anticipated should only help to add further weight to those reductions. We can therefore expect to see further pricing improvements in fixed rates, as lenders continue to fight hard to gain a share in a very competitive market.

Borrowers should secure a rate and can then keep a close eye on rate movements to capitalise on any further movement, while avoiding any risk of drifting onto an expensive variable rate.

The Bank's Monetary Policy Committee is now asked how low we could go in terms of interest rates, and whether the public can expect a drop, eventually, to near 0% - like before COVID.

"I think it's reasonable to say that it's unlikely we're going back to the world we were in in 2009 and the point at which we started raising rates," Andrew Bailey says.

He says that's because the economic outlook of that time was driven by massive shocks - like the financial crash.

"We will be somewhere around where the neutral rate will be - which will be lower than we are at now," he says, not going into any further specifics.

Markets expect that neutral rate to be between 3-4%.

Sky's data and economics editor Ed Conwayasks the Bank chief what he means when he says the base rate is still in "restrictive territory" and when we can expect this to change.

"We look at restrictiveness in terms of where we think growth is," Andrew Bailey explains.

He says if you look at the Bank's forecast for GDP, growth is "picking up".

"We're still below potential and we do have a small output gap opening up in the forecast," he says.

"I think that's one way of capturing the fact that there is still a restrictive setting in that sense and we think that is appropriate given we have to ensure the persistence of inflation is taken out of the system," he says.

He says "there is a way to go".

We now move to a Q&A.

The Bank of England governor Andrew Bailey is asked whether this cut will be "one and done", or whether we can expect a further decline down the road.

"I'm not giving you any view on the path of rates to come," he says.

"I'm saying we will go from meeting to meeting, as we always do."

He tweaks the question and asks himself (and then answers): "What's changed?"

"The answer is nothing's really changed actually much in terms of the economic news. It's that we have become more confident [as time has gone on]," he adds.

Bank of England governor Andrew Bailey says a consideration for the Bank is whether the decline in inflation is "baked in as the global shocks that drove up inflation unwind".

"Or are we experiencing a more permanent change to wage and price setting which will require monetary policy to remain tighter for longer," he says.

Mr Bailey says these have become "important questions" in the MPC policy considerations.

The Bank is forecasting inflation will increase to about 2.75% later this year.

It will then return to target 2% in 2025, the Bank thinks.

"We need to put the period of high inflation firmly behind us," Mr Bailey says. "We need to be careful not to cut rates too much or too quickly."

Bank of England governor Andrew Bailey is speaking on the Bank's decision to cut the interest rate from 5.25% to 5%.

He's joined by other members of the Bank's Monetary Policy Committee.

Watch live in the stream above.

The Bank of England has cautioned that interest rates will fall more gradually than they rose.

Shortly after cutting the rate, governor Andrew Bailey said policymakers "need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much".

He added: "Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country."

The base interest rate rose quickly from 0.1% in late 2021 to a peak of 5.25% last summer, before remaining there for 12 months.