The move comes despite tax changes and a Donald Trump victory in the US casting uncertainty over the future path of interest rates.
The Bank of England today announced it will reduce interest rates to 4.75%.
Rates were previously 5% after being cut by 0.25 percentage points in August, the first reduction since 2020, then kept the same in September.
The latest official data showed UK Consumer Prices Index (CPI) inflation fell to 1.7% in September, the lowest level since April 2021.
The slowdown, from 2.2% in August, was driven by a sharp slump in petrol prices and lower airfares.
Experts said inflation falling below the Bank’s 2% target level will encourage policymakers to continue easing interest rates, releasing some more pressure on borrowers and mortgage holders across the UK.
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Ben Thompson, Deputy CEO of Mortgage Advice Bureau, says: “Another rate cut is starting to move the dial back again in the borrower’s favour, following an eventful week or so since the budget. With the Bank of England opting for another steady .25 cut, we could see swap rates and, consequently, mortgage rates fall, subject to markets settling further following the budget and the outcome of the US election also.
“Our data shows that falling rates have already impacted borrower preference. Last month, over half (54%) of borrowers opted for a five-year fixed rate, an increase of 11% versus the same period last year, clearly showing a change in customer mindset. It will be interesting to look again at this after the dust has settled following the budget and the outcome of the US election, and their combined impact on mortgage pricing.”
The Monetary Policy Committee met in the week after Chancellor Rachel Reeves announced almost £70 billion of extra annual spending, funded by business-focused tax hikes and additional borrowing.
The Office for Budget Responsibility (OBR) said the sharp increase in spending will contribute to higher inflation, although it will also help drive stronger economic growth.
Inflation is forecast to average 2.5% this year and 2.6% next year before coming down, assuming “the Bank of England responds” to help bring it to the target rate, the OBR said.
While rate cuts may be good news for those looking to borrow, particularly for mortgages, it may mean lower rates for savers, who may need to shop around for the best rates.
Adam Thrower, head of savings at Shawbrook, says: “This rate cut might seem like bad news for savers, as it’s likely to push interest rates down. But there are still smart options out there. Locking into fixed-rate ISAs, for instance, can potentially give savers higher returns and the added tax benefits ISAs provide.
“Our analysis of CACI data shows that 1.4 million savers have fixed deals ending before January. For these savers, not switching could be costly. Leaving money in accounts to default to ‘standard’ rates, which are usually lower, could mean missing out on valuable interest over time.
“It’s also worth looking at lesser-known providers who offer the same FSCS protection as mainstream banks but often with more attractive rates. With interest rates falling, it’s crucial to shop around for the best savings deals.”
The US Federal Reserve will also announce the nation’s interest rate on Thursday, with financial markets also betting on a 0.25 percentage point reduction.
