Sarah Coles, head of personal finance, Hargreaves Lansdown: "A rate cut is never nailed on, but this time round it has at least had a decent dollop of No More Nails. So far, the Bank of England has been maintaining a single quarter-of-a-percent cut per quarter, and it looks on track to deliver the same next week. On the face of it, stubborn inflation could threaten the outlook for rate cuts. However, much of this is the result of rising bills – driven by global energy costs and water companies – and the Bank is fairly confident that this will work its way through the system and inflation will fall again without any significant intervention. Governor Andrew Bailey has also made it clear that slightly higher inflation needs to be balanced against threats to growth. GDP fell in both May and June, and with a backdrop of heightened global uncertainty and trade wars, there are some powerful headwinds. In this environment, it’s essential that higher rates don’t risk making things worse. Meanwhile, the weakening jobs market, and the slowing of pay rises, mean less risk of higher wages feeding further inflation. All of this points to a cut next week, and more cuts in the months to come.”
What this means for savings
Mark Hicks, head of Active Savings, Hargreaves Lansdown: “The savings market is forecasting a cut next week, as rates have continued to fall back during the past month, with easy access rates on the HL Savings platform falling 20bps on average whilst fixed terms fell by slightly less at 10bp. This isn’t surprising, given easy access rates are much more sensitive to base rate falls. While fixed terms currently have lower headline rates, as easy access deals get less generous and fixed term rates stabilise, the gap is closing. Given that markets now expect two rate cuts for the remainder of the year, expect easy access rates to fall towards 4% while fixed rates deals could remain relatively stable, eventually offering higher rates than easy access products. It means anyone who has money they don’t need for a fixed period of a few months or longer should consider tying it up for a better rate in the longer term.”
What it means for annuities
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: “The annuity market has been through a period of unprecedented strength, with incomes hovering near all-time highs. The latest data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,793 per year from a single life level annuity with a five year guarantee. These incomes have led to revival in a market that was once very much relegated to the sidelines, with last year proving to be a bumper year for sales and more of the same expected in 2025. However, with rate cuts looming, there is a chance that we could see these incomes come down over the coming months and this could be enough to convince those who have put off purchasing an annuity to take the plunge. It’s a decision that shouldn’t be rushed. Once bought, an annuity cannot be unwound, so don’t leave room for regret. Scan the market before deciding on a quote and make sure you get the right kind of annuity for your needs. An annuity search engine is a great way of getting quotes from across the market so you can see what different providers can offer and help you make the right choice.”
What about mortgages?
Sarah Coles: “Fixed mortgage deals have been drifting gradually down for some time, with the average 2-year fixed rate falling from 5.2% three months ago to 5.03% (Moneyfacts). They had bumped up slightly in the recent past, so in the last couple of days some banks have been cutting them in anticipation of a Bank of England rate cut. Assuming the rate is cut next week, we could see some competitive deals emerge after the announcement. However, further out, we may see cuts slow in the coming weeks. This is partly because expectations haven’t changed as much recently and are increasingly priced in. It’s also because lenders don’t want to go too far or too fast, or people who have already agreed a rate in advance will abandon it in favour of a cheaper one. If you have a remortgage looming, the coming days could be a great time to track down a good deal. Cuts could be vital, especially for the top 20% of earners. The HL Savings and Resilience Barometer shows they have average mortgages of £1,065, so every fraction of a percentage makes a major difference.”
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