New economic forecasts and government budget measures have dramatically increased the likelihood of cheaper borrowing for millions across the UK, with a significant interest rate cut now expected next month.
High Probability of December Rate Reduction
Financial markets are now pricing in a near-certain reduction in the cost of borrowing. According to data from the London Stock Exchange Group (LSEG), traders estimate a 93% chance that the Bank of England will lower the interest rate from its current level to 3.75% in December.
This shift in expectation is largely attributed to the government's recent budget, which included initiatives designed to slow down price rises. These measures, combined with new official forecasts for inflation and economic growth, have convinced markets that the time is right for the Bank to act.
What Cheaper Borrowing Means for You
A cut in the official Bank of England interest rate has a direct impact on household finances. It typically leads to cheaper borrowing for things like loans and, crucially, lower mortgage rates for both new homeowners and those on variable or tracker deals.
The relief is not expected to be a one-off. The current market view, based on LSEG data, anticipates further cuts in March and July of next year. If this trajectory holds, the base rate could fall to 3.25% by the middle of 2025.
Inflation Outlook and Government Intervention
The push for lower rates comes despite a complex inflation picture. The independent Office for Budget Responsibility (OBR) has acknowledged that inflation for this year will be higher than its previous estimate, partly driven by wage increases.
However, the OBR also confirms that inflation is on a path to fall. This decline is expected to be supported by specific government actions announced in the budget, such as cuts to energy bills and a freeze on fuel duty. The OBR's caution about the pace of future inflation drops is the reason why more aggressive rate cuts are not currently anticipated beyond next summer.
