Interest rates to drop to 0.25%?

Last week, we got a new Prime Minister in Theresa May. Not only confirmed that ‘Brexit means Brexit’, but she appointed prominent Leave campaigners David Davis, Liam Fox and Boris Johnson to key posts in her cabinet.

Despite the new leadership, there’s no denying that the financial markets are still jittery. And, if reports emanating from the Bank of England are to be believed, then we can expect interest rates to drop next month from 0.5% to a miniscule 0.25%.

There are a couple of reasons to believe this may take place. First, the minutes of the Bank of England’s Monetary Policy Committee on 13 July state that interest rate reductions or other ways of easing monetary policy will be up for discussion at its next meeting on 6 August.

Supporting growth

In the committee’s words: “The MPC is committed to taking whatever action is needed to support growth and to return inflation to the target over an appropriate horizon. To that end, most members of the Committee expect monetary policy to be loosened in August. The Committee discussed various easing options and combinations thereof. The exact extent of any additional stimulus measures will be based on the committee’s updated forecast, and their composition will take account of any interactions with the financial system.”

Further, a recent speech from the Bank’s Chief Economist Andy Haldane suggested a “material easing of monetary policy” was needed. He hinted that more quantitative easing could be on the cards as well as interest rate cuts. Or as he put it succinctly, it could be time to “use a sledgehammer to crack a nut”.

Good for borrowers, bad for savers

If interest rates drop to 0.25%, it will be great news for borrowers, who can expect more favourable rates on fixed term mortgages. Savers on the other hand won’t be so lucky. High Street banks and National Savings are already dropping their rates in anticipation of next month.

So, if you’re a saver, it could be time to take a look at fixed-rate savings bonds. If you’re a business owner, next month could be time to borrow the capital you need for expansion. Talk to your THP account manager if you have financial plans you’d like to discuss.

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