The Bank of England is crazy to reduce interest rates

I think Tanaria has identified the pitfall. If people who have savings put away for retirement think they will be eroded by inflation, then they will bring forward spending to buy some asset they want house improvements, new car rather than leaving it on deposit. It will buy more now, and if we end up brassic, the taxpayer will stump up for our care.

Of course, this is a narrative that contradicts the person paying a mortgage whose LTV ratio is at the early end of the equation.

Yes, I am aware of that; my point was that energy prices will rise again, and I doubt it will be by just 2%.

@Tanaria

“The BBC state that one of the driving factors for the drop in inflation is energy prices - well, those are going up again from October. Fuel and food prices are still at a high. Most everyday living costs are, but it also doesn't make sense to save unless you can afford to save thousands (which, again, the majority of people cannot) where interest rates generally become decent.”

A drop in inflation doesn’t mean prices stop rising. Inflation basically means prices are increasing.

They just aren’t going up as much as they would be if inflation was higher.

This is hardly a surprise, it's been predicted for months.

I agree with much of your argument, OP, but I slightly disagree about the inflationary impact of public sector pay rises. The extra money is likely to increase demand for services somewhat, but won’t cause wage cost increases for businesses which would lead to price rises.
The decision was obviously very finely balanced, and I hope the BOE pauses to assess its impact before cutting further. And I agree that Bailey has been a hopeless governor who was asleep at the wheel when inflation took off. He was lucky to keep his job.

Can someone please advise do you think the exchange rate will be better now £ to $ please

For now, I'm miffed on a personal level as my new 5-year fixed mortgage kicked in today. We have had a potential rate drop dangled in front of us for months, but the day I can't change anything anymore is the day it drops. Bloody typical. At the same time, house prices have dropped around 10k from their peak a few months ago, so my LTR now also looks shite despite overpaying every month.

Having had my little rant (and I appreciate it's only one person, but I will by far not be the only one who got kicked out of a nice, low and very affordable rate into this crap this year), I don't think the rates will drop significantly any time soon and may rise again.

The BBC state that one of the driving factors for the drop in inflation is energy prices - well, those are going up again from October. Fuel and food prices are still at a high. Most everyday living costs are, but it also doesn't make sense to save unless you can afford to save thousands (which, again, the majority of people cannot) where interest rates generally become decent.

Together with now reasonably high wage rises across different sectors (I expect that the junior doctors' and teachers' pay rises will kickstart a few others), Christmas spending coming soon, colder months which mean more indoor spending and what I anticipate to be an increasing fuck-it attitude by the squeezed middle and older people where saving appears to be penalised, I can foresee a big increase in inflation again.

That’s bonkers. The establishment is not out to get the Tories.

What a coincidence that the Bank of England cuts rates just as Labour are elected...

Mine will as it tracks the base rate. Appreciate not everybody will be in that position though.

Thank you, I have basic common sense but limited understanding of economics. So “demand led inflation” means -

people have more money to spend (hooray!)
so can buy more ‘stuff’
so the producers of ‘stuff’ put up prices just to increase their profits (boo!)
(which, to be fair, is their pay rise)

I guess that’s capitalism.

What are your qualifications/ background to justify this tone?

You seem to clearly have some insight considering you quote some valid sources, but I'm not sure 'Bank of England economists are all idiots' is a good way to get someone to listen to you.

Have you considered applying for senior jobs in the field where you can influence things if you know more than them, are clearly frustrated and feel things need to change?

The interest rates probably should have gone down a couple of months ago but some idiot decided to call a general election which made it impossible to do so whilst campaigning was happening (because that would have been seen as a political move to support the then government).

So I think this rate drop is actually one from a short while ago that's merely been delayed for that reason. So the most recent data might look quite as good as it did but what happened a couple of months ago is still sufficiently good to justify a small rate cut.

It's just quite a lot of people who has renewed their mortgage within the last few months got a worse deal than they probably should. (RTB: waves grumpily).

The lenders had already moved to cut rates as soon as we had the election as the BoE had signalled they were likely to make this cut. So I'm not sure rates in the market will actually reduce much more due to this latest rate as the market has already adjusted for it.

Why?

I’m sure lots of people got pay rises this year, because there’s no reason for that not to happen. And presumably it was your choice to take a pay cut and nobody forced you to. I’m assuming you could have got a pay rise, but instead chose a route where your pay decreased (I think it’s fair to assume that).

Andrew Bailey has just advised, on BBC News, not to expect that. They are worried about services inflation and high wage growth,

The public sector pay increases were badly needed and will be welcomed, and Andrew Bailey himself has said that, to the best of his knowledge, they will not be inflationary:

amp.theguardian.com/business/live/2024/aug/01/uk-house-price-growth-rises-bank-of-england-interest-rate-decision-looms-business-live

They (mostly) don’t because they don’t add costs to production of something for sale. They sometimes do if there are enough with enough of an increase to drive demand led inflation. I’m not the person you asked, but that’s my understanding.

@LargeDeviation
Please can you explain how public sector pay rises increase inflation? As most sources that I’ve seen indicate they (mostly) don’t.

The average of fixed rates already dropped in anticipation of this.

Well fingers crossed because as someone who’s fixed mortgage ended the month before everything went up…I could really do with a little luck!

Not necessarily- they may not respond to it at all an and it could take a while, but I think many are hoping there will be a reduction.

@Bex5490 , if you have a tracker mortgage, yes - probably. On a fixed rate for a fixed period, less likely.

As someone who knows nothing about economics, all I want to know is if this means my mortgage will go down!