Interest rate cut – What does it mean and why does it matter?

Today, the Bank of England cut its base rate from 0.5% to 0.25%. 

Movements in the Bank of England base rate can have implications for a range of financial products - including mortgages, savings, pensions and annuities. This article outlines what the change means and why it may matter to you. With a better understanding you will be better placed to consider your next steps.

The first move in 88 months

As background, the base rate had been at the previous level of 0.5% for 88 months, since March 2009, so the cut represents a change to our recent norm. 0.25% is actually the lowest the rate has ever been .

Given the rarity of rate movements over recent times, this change will generate significant media coverage. It had however been anticipated by some, as the Bank’s next step in response to the EU referendum.

A boost to the economy

In simple terms, the decision to leave the European Union has raised uncertainty in the UK economy. Uncertainty is not good for business and there are concerns that this could lead to economic slowdown. Cutting interest rates, thereby reducing the cost of borrowing, is seen as a way of boosting the economy at an uncertain time.

The Bank of England will keep a close eye on the development of the UK economy and will judge whether further movement in its base rate is needed. These decisions are made on a monthly basis.

For more information on interest rates, read 'Interest rates are reducing - But what are they, how are they set and why do they matter?' 

For more information about what impact changes in interest rates can have on your finances, read 'A cut in interest rates - what impact do they have on people's finance's?'

AR01737  08/2016

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