How will the latest Bank of England interest rate cut affect the UK?

On the face of it, the widely anticipated Bank of England interest rate cut (BBR) sounds like a positive move, but is it really the case?

For those with mortgage rates linked directly to the BBR, this announcement is good news and they will see a reduction in their monthly payments. However, for those mortgages linked to another variable rate, there will be no savings at all. And considering the majority of borrowers in the UK are now fixed rate borrowers (almost 7 million out of 8.4 million), you can see that this cut will have a minimal impact through the mortgage channel.

Of course, some may argue that it helps business…

BBR is actually more relevant to the small, and not so small shops on the high street because their rents are most likely to be directly influenced by the BBR. So this is really good news for them at a time when taxes are rising. But how many small retailers are actually left on the high street? Once again this may not represent a great swing for the high street retail sector.

Why is the Bank of England cutting interest rates when inflation may rise?

The cut comes with the news that inflation is likely to move up again, so why cut the BBR? It could signal the fact that neither the Government nor the Bank of England are happy with a stronger pound. A much weaker pound would help them to rebalance the national debt deficit and find new pockets of productivity in the economy.

Nobody wants to have a large national debt and inflation at the same time but almost all large economies are in this position right now. It is a smart move, among the large economies, to move first in this direction.

After all, all interesting elections are now complete, and it is back to reality. The new leaders will have to deliver on the promises made to their electorates while their creditors are keen to recoup their money with interest.

Interestingly, many news outlets state that this cut also signals that there could be future BBR cuts but they will arrive more slowly. Nobody should bet on this - it’s anyone’s guess where inflation will be one year from now. You can optimise a programme of paying back debt only if you know the path of inflation. Any guesses anyone?

So is the cut good news or bad news? The good news is that it is bad news for almost everyone - you, your neighbours, your colleagues, the ordinary and even less ordinary folk. Even those who have just been elected.

The only clear winners, seriously, are the ones who benefit immediately from lowering the cost of funding when doing business means working with many zeros. I feel much better for my bank.