Bank cuts interest rates as mortgages still set to rise

Interest rates have been cut for the second time this year, by a quarter of a percentage poi, but mortgage rates are still set to rise in a blow to homeowners.

- JANE DALTON

The Bank of England reduced the base rate from 5 per cent to 4.75 per cent yesterday, following a 0.25 percentage-point cut in August, which was the first drop in four years.

Governor Andrew Bailey said rates were likely to “continue to fall gradually from here”, but warned they could not be cut “too quickly or by too much”.

But the Bank’s Monetary Policy Committee (MPC) forecast that Rachel Reeves’s first budget as chancellor would push up inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.

Measures such as raising the bus fares cap and VAT on private school fees would drive prices up at a faster rate, the committee said.

These moves are predicted to increase inflation by 0.3 percentage points next year.

The base rate cut came despite the fact that fixed-rate mortgages and savings rates have gone up this week and are expected to rise further over the coming weeks.