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📰 The Bank of England Just Cut Interest Rates

📰 The Bank of England Just Cut Interest Rates

Plus: Presentation Slides Included

Afzal Hussein
February 07, 2025

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Estimated read time: 6 minutes (Click Here Presentation Slides)

Hey 👋!

The Bank of England (BoE) has just cut interest rates for the first time in a while, dropping them from 4.75% to 4.5%. This might sound like just another financial headline, but the impact of this decision will be felt by everyone—from businesses and investors to students, job seekers, and anyone with a savings account or mortgage.

So, how does this actually affect you? And what should you be doing right now to stay ahead of the game?

Let’s break it all down.

1. Why Did the Bank of England Cut Rates?

The UK economy is struggling. The BoE originally predicted 1.5% growth in 2025, but it has now slashed that forecast to just 0.75%—a clear signal that things aren’t going as planned.

At the same time, inflation (how much prices are rising) is still a problem. The BoE expects inflation to increase to 3.7% later this year before eventually cooling off.

So, by cutting interest rates, the BoE is trying to:

Boost spending and investment – Cheaper borrowing means businesses and people take out loans and spend more, which helps the economy grow.
Lower debt costs – Mortgage payments, credit card interest, and business loans become cheaper.
Support the job market – When businesses can borrow easily, they hire more people and expand operations.

However, there’s a risk: if inflation doesn’t fall as expected, cutting rates too aggressively could make things worse by driving up prices even further.

2. How This Impacts You

Rate cuts aren’t just something that affects big banks and investors—they can have a direct impact on your personal finances:

If You Have a Mortgage or Loan

Good news! Lower interest rates reduce borrowing costs—meaning your mortgage repayments or loan interest could go down.
But beware – If you’re on a fixed-rate mortgage, you won’t see an immediate benefit.

If You Have Savings

Bad news. Banks pay less interest on savings accounts when rates fall, so your money earns less over time.

What you can do: Consider moving savings into higher-yield investments like ISAs, index funds, or dividend stocks.

If You’re Job Hunting

Sectors that benefit from rate cuts (finance, real estate, tech) may hire more.
But… economic uncertainty remains. The BoE predicts the unemployment rate will rise to 4.8% next year, so competition could still be tough.

If You Invest in Stocks

Great news! Lower interest rates typically push stock markets higher (more on that below).

3. Why Did the FTSE 100 Hit a Record High?

The FTSE 100 surged to an all-time high after the BoE’s announcement. But why?

Here’s the simple explanation:

Lower interest rates make bonds less attractive (because their yields drop).
Investors move their money into stocks instead, pushing prices up.
Companies benefit from cheaper borrowing, which can boost their profits and stock valuations.

Example: Imagine you’re an investor. If government bonds only pay 2%, but stocks are returning 8%+, where would you put your money?

This shift from bonds to stocks is exactly why the FTSE 100 jumped after the rate cut.

Takeaway: If you’re an investor, pay attention to interest rate trends—rate cuts often fuel stock market rallies.

4. What’s Next? More Rate Cuts?

Markets expect at least two more rate cuts this year, and there’s a 55% chance of a third. But the BoE has made it clear they’re taking a cautious approach.

Why? Because inflation is still unpredictable.

The BoE expects inflation to peak at 3.7% before dropping to 2.5% in 2026 and 2% in 2027.
But if that prediction is wrong, the BoE might have to change course and slow down rate cuts.

So, the big question is:
Will rate cuts be enough to fix the economy, or is more action needed?

5. The Global Wildcard: Trump’s Trade Tariffs

Another factor that could shake things up is what’s happening in the US.

Donald Trump has hinted that if he returns to office, he’ll impose tariffs on the EU, Canada, and Mexico—but possibly not the UK.

How this affects the UK economy:

If the UK avoids tariffs, it could become a more attractive trade partner.
But if global trade slows, it could still hurt UK businesses.

The BoE hasn’t factored Trump’s trade policies into their forecasts yet, because they simply don’t know what will happen.

6. Actionable Steps – What You Should Do Next

If You Have a Mortgage: Consider refinancing if rates drop further.

If You Have Savings: Look for better investment options like ISAs or stocks.

If You’re Investing: Follow interest rate trends—rate cuts often mean a stronger stock market.

If You’re Job Hunting: Keep an eye on industries that benefit from rate cuts (finance, real estate, tech).

7. The Big Takeaway: Stay Ahead of the Game

Interest rate cuts might seem like a boring financial headline, but they directly impact your savings, investments, job prospects, and even the prices you pay at the supermarket.

Understanding these shifts gives you an edge—whether it’s knowing when to refinance, where to invest, or how to navigate the job market in a changing economy.

With more rate cuts potentially on the horizon, this is just the beginning.

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