Interest rates live updates: Bank of England base rate cut to help ...

Sainsbury’s has said shoppers will face higher prices as a result of the surprise tax changes announced in last week’s Budget, which will hit the retailer with an extra £140m in costs.

The supermarket giant’s boss Simon Roberts said there is “already too much pressure in the pipe” for the retailer to swallow an unexpected cost rise without it affecting prices.

It has become the latest business to warn that increases to company national insurance contributions, coupled with a change in the threshold, are likely to result in pressure on consumers.

The Bank of England warned that inflation could rise higher than its new forecast that Rachel Reeves’ Budget would push inflation up by 0.5 per cent in 2026 if prices are passed on to consumers.

The Bank of England’s interest rate cut will “provide a measure of relief for many households and firms”, a business advocacy group has said.

Muniya Barua, deputy chief executive at BusinessLDN, said: “This small rate cut will provide a measure of relief for many households and firms struggling with high borrowing costs and concerned about the tax hikes announced in the Budget.

“With rising taxes weighing on business confidence, it’s vital that the chancellor’s Mansion House speech makes further progress towards unlocking investment.

“Looking ahead, next year’s spending review should include a longer-term funding deal for Transport for London to support the city’s future growth, put the capital’s devolution deal on a par with other trailblazer regions and provide further public investment to tackle the city’s housing crisis.”

The interest rate cut could mean tougher times for savers – increasing the need to shop around for the top deals.

According to Moneyfactscompare.co.uk, the average easy access savings rate on offer has already fallen from 3.15 per cent in August to 3.03 per cent in November.

The average easy access Isa rate has fallen from 3.36 per cent to 3.24 per cent between August and November.

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, suggested some savers may want to consider savings accounts offered by challenger banks.

“Challenger banks are offering attractive returns and it would be unwise to overlook them,” she said, adding: “Savers need to proactively keep on top of the best rates and review their pots regularly to see if they are getting a raw deal.”

Mortgage rates could briefly increase despite the Bank of England cutting rates, an analyst has said.

Rightmove’s mortgage expert, Matt Smith, said: “This base rate decision comes at the end of a run of important macro-economic and political events on both sides of the Atlantic.

“All of this has resulted in a view that base rate will be cut at a more moderated pace than previously expected and has been priced in by lenders. Therefore we are likely to see average mortgage rates drift up a little in the short term, before starting to fall back again.

“Today’s decision will probably help relieve pressure on lenders to increase rates as we had started to see. If the last few weeks has taught us anything, it is that the UK mortgage market remains competitive, but headline pricing will continue to be impacted by events both in the UK and overseas.”

Rachel Reeves “will be pretty pleased” with the Bank of England’s assessment of her Budget, an analyst has suggested.

“After two weeks of volatile political theatre the Bank’s decision to stick to the script and cut rates is very welcome. Inflation remains moderate and economic growth positive, if anaemic,” said Nicholas Hyett, an investment manager at Wealth Club.

“The Chancellor will be pretty pleased with the Bank’s assessment of the last week’s budget. Yes it will drive a modest pickup in inflation, but GDP is also expected to be around 0.75% higher next year than it would otherwise have been.

“The big unknown is the future path of wage growth. A relatively tight labour market has driven sticky service inflation, but now seems to be easing. The problem is that rises to the minimum wage and National Insurance contributions in the Budget have the potential to keep service inflation higher going forwards if employers pass those costs on.

“All in all, this is far from a showstopping set of MPC minutes – it feels like the Bank is happy to wait in the wings and see how the politics plays out.”

Chiming with the sentiments of the think-tank whose former director-general backed Liz Truss’s mini-Budget, the progressive Institute for Public Policy Research (IPPR) has also said the Bank of England should move “further and faster” on cutting interest rates.

Carsten Jung, head of macroeconomics at IPPR, said: "Given low inflation and slow growth, the Bank of England should have cut rates by more. A further and faster rate cut is needed to support economic recovery.

“The Bank of England confirmed that the new government's Budget will likely improve economic growth. We think it is unlikely to put much upward pressure on inflation, consistent with recent evidence from the US. This should encourage the Bank of England to be bolder in reducing interest rates.

“Separately, the Treasury transfers about £20bn annually for quantitative easing losses at the Bank of England – funds that could cover half of last week's increase in the public services spending. The UK is an international outlier in this practice, which should be reconsidered."

The Bank of England “should move further and faster” in cutting interest rates, an analyst has said.

“The Bank of England was right to cut interest rates again today but should move further and faster,” said Julian Jessop, of the right-wing Institute of Economic Affairs think-tank. “Rates are still higher than necessary to keep bearing down on inflation, especially when the Bank is continuing to tighten policy by running down its holdings of government bonds.

He added: “Inflation is now back close to target and expected to remain there, but the full effects of past increases in interest rates and the deceleration of money growth have yet to feed through.

“The additional uncertainty and market volatility triggered by the Budget and Trump’s victory had prompted some to speculate that the MPC might hold off today. Delivering the rate cut that almost all had expected should therefore help to reassure households, businesses, and investors.

“The Bank has also endorsed the OBR view that the additional spending and borrowing in the Budget will provide a temporary boost to growth and inflation. This could slow the pace of rate cuts in future, though the Bank stuck to its guidance that rates will fall ‘gradually’ (perhaps a quarter point every three months, taking the Bank rate to 3.75% by the end of next year).

“However, the Bank’s forecasts are based on assumptions about the path of market interest rates which already look too optimistic. The increases in taxes and other business costs in the Budget, compounded by the hit to confidence, should also limit any upsides to growth or inflation.

“The Bank acknowledged the uncertainties here, implying rates could still be cut more quickly. But there is a clear risk that the MPC is too slow to respond.”

The pound remained up on the previous day’s close, rising from $1.2890 to $1.2996 as of 4pm.

Reacting the Bank’s announcement, Andrew Montlake, managing director of Coreco mortgage brokers, said: “Whilst this cut will be welcomed by all those looking to buy or remortgage in the near future, it is important to note that this does not necessarily mean that mortgage rates will drop substantially in the short-term.”

He added: “However, the good news is that this shows the Bank of England is confident that even amongst all the uncertainty they have now tamed inflation sufficiently to be able to continue with their longer-term plans to reduce interest rates.”

Kyle Chapman, an analyst at Ballinger Group, said the Bank of England’s announcement today was “very much a hawkish cut”, in signalling that further cuts will remain gradual.

“The budget has fundamentally altered the calculus for the Bank of England’s rate path. It keeps the BoE on a path of quarterly rate cuts for the foreseeable future, and the market is now only expecting two extra cuts by mid-2025,” said Mr Chapman.

“The extra short-term stimulus is expected to materially increase inflationary pressures, and the projections have validated the gilt market’s expectation for a slower pace of policy easing. That should bode well for sterling on the crosses and GBP/EUR could rise further from here.

“It is notable that the Bank sees no material GDP boost from the budget in the longer term. While 2025 is expected to be significantly higher, the forecasts thereafter continue to expect a low potential growth rate. That is another blow to Reeve’s ‘growth-first’ reasoning behind the budget in the first place.”