Comment on the announcement of the reduction in interest rates by the Bank of England from QPS Managing Director, Robert Arnold
The recent reduction in interest rates is welcome news for the recruitment sector. Over the past four years, interest rates have remained at their highest levels since 2008, creating significant challenges for recruitment agencies striving to meet client demands. While the recent cut is modest, it is a positive step, and we remain hopeful for continued reductions.
Observations from the recent cut in interest rates
Interest rate cut: For the first time in over four years, the Bank of England has lowered interest rates from 5.25% to 5%. This marks the first reduction since the onset of the pandemic in March 2020.
Impact on borrowing costs: Although the rate cut will offer some immediate relief to homeowners with variable-rate mortgages, the Bank of England has indicated that borrowing costs are unlikely to fall sharply in the near future.
Inflation concerns: The decision to cut rates was closely contested, with a narrow 5-4 vote among the Bank’s policymakers. Governor Andrew Bailey stressed the importance of maintaining low inflation and cautioned against cutting rates too quickly.
Homeowner impact: While the rate cut will benefit some homeowners, many with fixed-rate mortgages will face higher rates when their current deals expire, as most of these loans are due to end by 2026.
Inflation rates: The inflation rate reached the Bank’s 2% target in May and June, but core inflation remains elevated. The Bank expects inflation to rise in the latter half of the year due to increasing energy costs.
Wage growth and public sector pay: Wage growth has slowed, which is a positive development for controlling inflation. The Bank does not anticipate that recent public sector pay rises will have a significant impact on inflation.
Economic growth forecast: The Bank has revised its growth forecast for the UK economy between April and June, increasing it to 0.7% from a previous estimate of 0.2%. However, growth is expected to slow in the second half of the year as businesses report weaker momentum.
Want even more insights?
At QPS, we are dedicated to supporting businesses with expert payroll and financial services, and offering insightful analysis and practical advice on employment and tax legislation. Our mission is to help businesses navigate complex regulatory landscapes with confidence. This is why we’ve taken the time to go through the new Labour manifesto and highlight the bits that are most important to you, giving you insights and expert analysis on its implications for employment, tax, and business support.
