Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group, said: “Today’s 0.25% rate cut continues the Bank of England’s measured approach to easing monetary policy, following a cut in May and a hold in June. While not unexpected, it reinforces the Bank’s cautious response to a challenging economic backdrop. Interest rates are now at their lowest level in two and a half years, reflecting growing concerns about economic momentum and a softening labour market. While inflation remains way above the 2% target, the Bank is clearly attempting to support growth without reigniting price pressures - a delicate balancing act. For borrowers, particularly those on variable rate mortgages or nearing the end of fixed-term deals, this move offers some relief. However, with household budgets still under strain from high living costs, the impact may be gradual rather than immediate. The path ahead remains uncertain, and further rate cuts in 2025 are not guaranteed. Savers face a more complex picture. Retail cash rates may begin to fall and with inflation still elevated, real returns on cash savings risk being eroded. Maintaining accessible cash for short-term needs remains sensible, but it’s increasingly important to consider long-term strategies. Investing through tax-efficient vehicles like ISAs and pensions can offer the potential for inflation-beating growth. While markets can fluctuate, a diversified, long-term approach can help people to build up financial resilience.”
Chris Arcari, Head of Capital Markets, Hymans Robertson says: “The market fully expected today’s cut from the Bank of England (BoE) by 0.25% pa to 4.0% pa. Looking ahead, the market anticipates one more 0.25% pa cut before year-end, followed by another in 2026, taking the bank rate to 3.5% pa. Once again, the central bank is being forced to walk the tightrope between weakening growth and persistently above-target inflation. Monthly GDP data point to contractions in both April and May while there’s evidence that firms are cutting jobs in response to higher employer payroll taxes. This will intensify pressure on the Bank to overlook the expected rise in inflation – forecast to reach nearly 4% in September and already above target. The BoE in an unenviable position: continue to cut rates and risk de-anchoring inflation expectations (regardless of whether the current price rise is temporary or not); or keep policy rates higher and risk delaying a revival in growth.”
Julius Bendikas, Mercer’s European Head of Economics and Dynamic Asset Allocation said: “The economy remains weak on the back of growing pressure on the government to meet its fiscal rules through a combination of higher taxes and reduced spending, and tariff related headwinds. The labour market is weak, but inflation and wage growth are elevated. So the Bank faces a dilemma as the former argues for lower interest rates, while the latter doesn’t. Our view is that the Bank will follow today’s cut with further gradual interest rate reductions over the next few quarters.”
Adam Gillespie, Partner at XPS Group, commented: “While today’s cut offers some relief for mortgage holders, we expect the impact on DB and DC pension schemes to be modest. This cut won’t move the needle much for most schemes as it is the movements in long-term UK yields - shaped in part by the Government’s challenging fiscal position - that will have the greatest impact on pension outcomes. Trustees and sponsors should remain focused on the bigger picture: robust long-term funding and risk management, and not simply the latest rate change. Today’s cut is likely to have a negligible impact on UK DB schemes, with schemes remaining well-funded and largely insulated from short-term rate changes by hedging strategies. For DC savers, the picture is more nuanced. Lower base rates may reduce returns on cash holdings, but long-term pension growth continues to be driven primarily by investment performance rather than short-term rates. Outcomes for those purchasing annuities continue to depend heavily on long-term yields.”
|
