Interest rates: Bank of England warns surging food prices could push inflation to 4% By Newsoramic

Mortgage-holders on a standard variable rate (SVR) deal could have their monthly payments reduced by £13.87 on average, adding up to an annual saving of £166.44 – provided the lender passes on the base rate cut in full.

Borrowers often end up on an SVR when their initial deal ends and the rate is set by individual lenders but often follows movements in the base rate.

Dean Butler, of Standard Life, said: “For borrowers, particularly those on variable rate mortgages or nearing the end of fixed-term deals, this move offers some relief.

“However, with household budgets still under strain from high living costs, the impact may be gradual rather than immediate.

“The path ahead remains uncertain, and further rate cuts in 2025 are not guaranteed.

“Savers face a more complex picture. Retail cash rates may begin to fall and with inflation still elevated, real returns on cash savings risk being eroded.

“Maintaining accessible cash for short-term needs remains sensible, but it’s increasingly important to consider long-term strategies.”

Nearly £29 will be shaved off the monthly repayments of an average homeowner on a tracker mortgage, according to industry figures.

Banking and finance industry body UK Finance calculated that the reduction in the base rate, from 4.25% to 4%, will mean the typical mortgage holder on a deal that directly tracks the base rate will pay £28.97 per month less, based on the average balance outstanding.

Over a year, this adds up to a reduction of nearly £350 (£347.64).

Ashwin Kumar, director of research and policy at the Institute for Public Policy Research, said: “With growth reducing in the past couple of months, fewer employees paying taxes and Trump’s tariffs increasing global trade frictions, the Bank of England’s rate cut from 4.25 to 4 per cent is welcome but not enough.

“The Bank has kept rates too high for too long. Inflation is expected to return to target, with risks to the economy and global growth over the next few years warranting a larger cut of 0.5 per cent.

“The government has other options to ease pressures on households immediately – even as price increases are set to slow, essential costs remain high, and further action is needed to bring down the cost of living.

“One way to deliver swift support is by rebalancing energy bills: lowering electricity prices, helping with energy debts, and ensuring that households access the cheapest energy prices on offer.”

David Bharier of the British Chambers of Commerce said the Bank is right to act to “mitigate the risk of a deeper downturn”.

“SMEs in particular have been under sustained pressure from cumulative cost increases and external shocks.

“The impact of April’s national insurance rise is now tangible, with firms reporting reduced investment and recruitment plans.

“Rate cuts alone are only part of the solution. To restore business confidence, firms will need to see a roadmap to lower their cost burden, further improvements to ease trade friction, and greater investment in AI and infrastructure.”

This encourages people to spend and so increases the rate of inflation.

There is no such thing as a free lunch, or, in this case, a free Christmas dinner.

Even as he unveiled an interest rate cut that will be hailed as good news for millions of mortgage-payers, the governor of the Bank of England warned that the institution forecasts inflation will continue to rise, especially food inflation.

While inflation overall is predicted to peak at 4 per cent in September, food inflation will continue to rise to 5.5 per cent between now and Christmas.

The figures will also come as a blow to the chancellor – just days after she was warned she faces a £50bn black hole in the government’s finances.

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The number of complaints about financial firms where the ombudsman was called on to step in has fallen to its lowest level in more than a year, with fewer gripes recorded about issues such as perceived unaffordable lending and fraud.

Between April and June, it received 10,000 new cases related to perceived irresponsible and unaffordable lending – less than half of the 21,600 complaints received a year earlier.

Similarly, the most complained-about issue it is currently seeing – motor finance commission – also saw a drop in complaints, from 36,000 cases between January and March to 21,500 cases processed between April and June.

Bank governor Andrew Bailey said: “There are different camps who think where the neutral rate would be.

“I still think the path is downward for interest rates. But there is genuine uncertainty about the course of that direction.

“The path has become more uncertain because of what we’re seeing: we’re seeing an upside risk with inflation, but we’ve got a downside risk with the weaker labour market story. We’re balancing that.

“I certainly haven’t changed my view on the direction of the path, it’s more a question of what time it takes.

“Higher food inflation has contributed to overall inflation – we expect this to be about 4% in September. There are good reasons to think this rise in headline inflation will not persist,” he said.