Chris Arcari, Head of Capital Markets, Hymans Robertson said: “The Bank of England’s decision to cut interest rates today underscores growing confidence that domestic price pressures are easing and recent monetary restraint is taking effect. Wage growth and services-sector inflation, while still elevated, are moderating, reducing the risk of persistent domestic price pressures. At the same time, recent business surveys point to weakening growth momentum, softer demand and continued headcount reductions, with output price inflation at a five-year low. Against this backdrop, policymakers are seeking to balance the upside risk of inflation against mounting downside risks to economic activity and the labour market. Today’s rate cut reflects a cautious approach, easing policy to support demand while ensuring disinflation remains on track. Monetary policy is judged to be moderately restrictive and moving closer to neutral, so gradual, data-dependent easing appears appropriate. Looking ahead, uncertainty persists on both sides. Premature loosening could stall progress on inflation, while maintaining too-tight conditions risks deepening economic fragility. The Bank’s stance signals confidence in the disinflation trend, but also vigilance in navigating a complex and volatile outlook.”
Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group, said: “The Bank’s decision to cut interest rates to 3.75% will be welcome news for borrowers, taking the base rate to its lowest level in three years. While still a close vote, the move reflects a combination of easing inflation at home, softer pay growth and a broader shift among central banks globally. Last week’s rate cut by the US Federal Reserve has added to the sense that the peak in interest rates is behind us, giving the Bank of England greater confidence to begin easing policy - albeit cautiously. For households, the immediate impact will be felt most clearly by borrowers. Those on variable rates or approaching the end of a fixed mortgage or loan deal should start to see some relief as lenders gradually pass on lower rates. That said, further cuts aren’t guaranteed to come quickly. With policymakers signalling caution about how far and how fast rates can fall, this is a sensible moment for borrowers to review their options and make sure they’re on a deal that suits their circumstances. For savers, the picture is more challenging. As rates fall, returns on cash savings will likely drop too, and with inflation still above target, your money could lose value over time. It’s sensible to keep some easy-access cash for everyday needs and emergencies, but once that’s covered, relying on cash alone might not be enough. Looking at longer-term options -such as pensions, which remain one of the most tax-efficient ways to save, or other investments - can help your money work harder, protect its value, and support your financial security as the interest rate landscape shifts.”
Adam Gillespie, Partner, XPS Group, commented: "The Bank of England's cut to 3.75% marks the first time base rates have fallen below 4% since February 2023. Whilst mortgage holders will welcome the relief, the impact on defined benefit schemes is more nuanced than headlines suggest, as funding is driven by long-term government bond yields rather than short-term rates. The level of rates is important for DB schemes, but with most now close to maximum hedging levels, the performance of interest rate hedges and the behaviour of the gilt curve matters just as much. We are currently seeing significant fragmentation in the UK gilt market, with conditions amplifying mismatches between scheme liabilities and protection strategies. This creates material financial risk, especially for maturing schemes with perceived low risk strategies. Trustees and sponsors need to stress-test their hedging framework, with robust LDI governance now the defining factor in the success of future DB investment strategies."
Royal London’s Clare Moffat, comments: "The Bank of England’s decision to reduce the base rate to 3.75% will be welcome news for many households, particularly at this expensive time of year. Christmas spending adds extra pressure, and our Financial Resilience Report shows that one in ten people are already struggling to pay household bills. Financial pressures remain high, and for savers, lower rates could mean reduced returns on cash savings. It’s essential that savers shop around to see if there is a better rate available. Building resilience through budgeting, maintaining an emergency fund, and seeking advice on long-term planning remains crucial. For those nearing retirement, consider that lower interest rates might affect annuity rates and income planning – and don’t delay reviewing your pension strategy to ensure it aligns with your goals."
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