independent.co.uk
Bank of England Cuts Interest Rates
The Bank of England cuts interest rates to combat low inflation, but economic uncertainty remains.
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EconomyLabour MarketLifestyleUkInflationFinanceBankingInterest Rate
Bank Of England
Andrew BaileyDonald Trump
- How do interest rates affect inflation?
- Low interest rates discourage saving and encourage spending, potentially leading to increased prices. High interest rates incentivize saving, potentially reducing demand and lowering prices. However, other factors also impact inflation.
- How do interest rates affect mortgages?
- Mortgage rates are typically higher than the Bank of England's base rate. Variable rate mortgages (like tracker and SVR) are directly affected by base rate changes, while fixed-rate mortgages are unaffected during their fixed term, but then revert to a variable rate.
- What are interest rates and how do they work?
- Interest rates are a measure of the cost of borrowing money or the reward for saving. Higher rates mean higher borrowing costs and better returns on savings, influencing spending and inflation. Low interest rates can stimulate spending, potentially driving up prices.
- Why did the Bank of England cut interest rates?
- The Bank of England cut interest rates for the second time this year, dropping the base rate from 5 percent to 4.75 percent. This decision follows a similar cut in August and aims to control inflation, which recently fell below the Bank's 2 percent target.
- What are the broader economic implications of this interest rate cut?
- The recent interest rate cut reflects the Bank of England's response to unexpectedly low inflation. However, tax changes and political uncertainty introduce longer-term market unpredictability. This highlights the complexities of managing inflation through interest rate adjustments.