Articles > Bank of England Decision and Inflation

For only the second time in the Bank of England's history, rates were cut on 8th October by .5% to 4.5%.

What's even more surprising, this was a concerted move by a number of central banks around the world; including the American Federal Reserve, the European Central Bank and the Bank of Canada.

What does this mean for mortgage interest rates? Well, if you already have a mortgage, and it is a tracker rate, then your monthly payments would have decreased over night.

To give a working example; if you have an interest-only mortgage for £200,000 at base plus .99%, your rate would have dropped from 5.99% to 5.49%. This means that your monthly payments would have dropped from £998.33 to £915.00 overnight.

If you are on a fixed rate, this obviously will not affect you until your fixed rate period ends. When this happens, though, you will likely have access to deals that would normally have been higher.

For people who are looking to take out a mortgage, the situation is not as clear cut. Tracker rates for new customers dropped immediately following the Bank's decision; however, over the last few days, most major lenders have raised their tracker rates to compensate. For example, a rate may have changed from .99% above base to 1.29% above base, only passing on some of the savings. With regards to fixed rates, we will likely see a change to these products over the next week or two.

Part of the decision to cut rates by .5% was based on a concerted decision between various central banks. With particular regards to the Bank of England, this decision was also made taking into account an anticipated fall in inflation.

Fuel prices have reduced fairly dramatically over the last weeks. While there is no official evidence that this has had the desired effect of reducing inflation, it is expected to do so over the next few months. Once this is confirmed, the Bank of England will then be at liberty to consider more rate cuts, most likely in the new year.