The Bank of England has cut interest rates from 4 per cent to 3.75 per cent following a fall in inflation
Martin Lewis has shared crucial financial guidance following the Bank of England’s decision to reduce interest rates. The rate dropped from 4 per cent to 3.75 per cent, as confirmed today (December 18), marking the lowest level in nearly two years.
This follows inflation falling more sharply than anticipated to 3.2 per cent. There is widespread speculation that interest rates could be slashed again in the near future, though policymakers narrowly backed the cut by just 5-4 votes this time.
Governor Andrew Bailey indicated it would be a ‘closer call’ when next reviewing interest rates. Inflation is projected to keep declining towards the 2 per cent target in the coming year.
Responding to the cut, the money-saving expert outlined the implications for savers, homeowners, credit card holders, and those either holding or seeking to arrange a loan.
On the subject of savers, he emphasised that those considering fixed-rate deals needed to move ‘today’ to lock in the most competitive rates, as these were likely to decline after the latest interest rate reduction.
“Variable savings and easy access will likely drop in the next 2-4 weeks by a quarter of a per cent, especially the top ones. The lower ones are so low, they probably won’t move anyway,” Mr Lewis said on Radio 5 Live.
“My advice for anyone. If you are looking immediately at getting fixed savings, do it today, do not wait. Do it as soon as you hear this, because what happens on fixed rate savings is that the savings providers offer a certain amount of savings today. They’re going to offer, say, £30m of savings today at this rate and they’ll decide their new rate once that £30m goes.
“So, you are still in the window of some of them having not run out and you want to get in before they start coming in at lower rates.”
He went on to explain on Instagram: “Variable rate savings (which is mainly easy access accounts) will likely drop within two to four weeks by 0.25 per cent,” adding: “Fixed rate savings have already factored in some of this cut. Though they may shave down further. If you want to fix your savings, the safest bet is do it today.”
The reduction is expected to impact individuals and businesses seeking to borrow money, including those searching for a mortgage. However, it’s likely to have a negative effect on savers.
Approximately 500,000 homeowners have a mortgage that “tracks” the Bank of England’s rate, and Thursday’s reduction is expected to result in a typical decrease of £29 in monthly repayments.
READ MORE: ‘I worked with dying people for years, they all regret the same thing’READ MORE: ‘I had ringing in my ears for years – what doctors found shocked me’
Mr Lewis added: “This really affects people with savings and mortgages – variable rate mortgages,” continuing: “Easy-access rates are all going to drop in a line. A couple of them might keep rates high to keep a short-term competitive advantage.
“(For mortgages), if fixed, no change until your fix ends. The rate of new fixes may drop a tad, but this cut was expected so has mostly already been somewhat factored in.
“If on tracker rate will drop 0.25 percentage points. If variable (including standard variable rate) it should drop by around that but it doesn’t have to be exact amount. Usually takes up to a month to come in. A 0.25 per cent reduction is equivalent to £15 lower repayments per month per £100,000 of mortgage.
“For credit cards, mostly unaffected, they’re already so high above the base rate with typical APRs now 24.9 per cent. Though it may see slightly longer 0 per cent deals launched.
“Existing loans are unaffected as they’re usually fixed rates. New loans are set based more on interest rate forecasts than base rate moves. Expect the cheapest new loan rates to shave down very marginally but it takes quite a while for that to factor in.”
