Bank of England interest rates warning as several cuts expected | Personal Finance | Finance

The Bank of England is expected to cut interest rates next week – sparking a series of reductions in 2025.

The bank is set to drop them from 4.75% to 4.5%, in a move that could shake up savings, mortgages, and retirement plans.

Markets are pricing in an 84% chance of a cut as policymakers respond to slowing economic growth and a dip in inflation.

Some finance experts, including a new member of the Bank of England’s Monetary Policy Committee (MPC), suggests this could be the first of five or six quarter point cuts over the next 12 months to head off a recession.

While a rate cut may bring some relief to borrowers, experts are warning that it could also put pressure on savings rates, with further cuts likely to be gradual and cautious due to rising prices and job losses.

Homeowners hoping for immediate savings on mortgage payments may be disappointed.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “A rate cut has been on the cards ever since inflation fell in December, but it won’t be a game-changer overnight.

“Fixed-rate mortgage holders won’t see any sudden drop, as the market has already priced this in. The average two-year fixed mortgage has actually crept up slightly, from 5.48% to 5.52% this year.”

However, she added that as long as inflation remains under control, rates should trend downwards over time, which could ease financial pressures on millions of mortgage holders.

For savers, a rate cut means banks and building societies may trim interest rates on easy-access accounts, as lenders adjust to a lower base rate.

According to Mark Hicks, head of Active Savings at Hargreaves Lansdown, some cuts are already being priced in.

“The easy access market will come under pressure, while fixed-term accounts should stay steady. Cash ISAs remain competitive, with many providers still paying around 5%, but if the market expects deeper cuts, those rates may not last,” he said.

For retirees considering an annuity, there’s good news—payouts are still near record highs.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “A 65-year-old with a £100,000 pension can still secure up to £7,492 per year from a single-life level annuity—just shy of all-time highs. Even with a rate cut on the horizon, annuities remain attractive.”

She advised pensioners to shop around before locking in a deal, as different providers offer varying rates.

While the expected rate cut is aimed at boosting growth, concerns remain over rising business costs, potential stagflation, and employment uncertainty.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, warned that businesses are already raising prices due to higher National Insurance contributions demanded of them in the Budget, and private sector job cuts are at their highest level since the pandemic.

She said: “The economy is stagnating while inflation pressures still lurk. That means the Bank of England may move cautiously on further cuts, despite financial markets predicting at least two more this year.”

This is at odds with recent predictions of five to six rate cuts of five to six rate cuts from both Morgan Stanley and Goldman Sachs.

The Bank of England’s decision next week will set the tone for the economy in 2025 – and with the cost of living still biting, all eyes will be on how quickly borrowing costs come down.