This article examines the impact of the Bank of England's interest rate cuts on the financial status of British households, along with economists' forecasts.
State of the Economy and Interest Rates
Over the past year, the Bank of England has reduced its key interest rate from 5.25% to 4.25% in an attempt to support the economy. However, despite four rate cuts, households are approximately $14.5 billion worse off compared to the previous year. This underscores the difficulty for policymakers aiming to alleviate financial pressure on the population.
Impact on Households
Lower rates have impacted UK residents in the following ways: savers have lost nearly £5 billion in earnings from deposits, while homeowners continue to pay higher rates on mortgages. Compared to last year, interest on loans has also increased by £6 billion. It is estimated that over 1 million people have fixed deals above today's rates and cannot take advantage of cheaper credit.
Future Outlook
The Bank of England is expected to lower its main rate by another 0.25 percentage points to 4% soon. Economists forecast that over the next few quarters, rates may reach approximately 3.5% by spring 2026. However, high inflation levels and demands for higher wages could slow this process.
Despite actions taken by the Bank of England, households face financial pressure, and restoring the economy requires a cautious approach to spending and income.
