UK households are £11 billion worse off despite four rate cuts

One year has passed since BoE began cutting interest rates, yet British households continue to feel the pressure from high borrowing costs.

Bloomberg’s review of Bank of England data showed that despite four rate cuts since July last year and more likely to come, households are about $14.5 billion worse off each year than 12 months ago.

This shortfall comes even though the Monetary Policy Committee cut its key rate from 5.25% over that period.

Savers have felt the pinch as banks and cut rates on deposits, reducing returns on cash. Homeowners have not seen similar relief, since many are on mortgage deals agreed at the peak of borrowing costs and must wait for those terms to expire.

These numbers underline the challenge for policymakers to reduce pressure for households and revive the weak growth in Britain, as they work to reduce the benchmark rate that was at 5.25% a year ago, highest since the global credit crunch. Earlier in April, Cryptopolitan reported that the Bank of England cut its benchmark rate by 0.25 percentage points to 4.25%.

Consumer spending makes up about 60% of the UK economy, and any recovery hinges on people spending more. But many remain cautious, saving money amid fears of further tax rises in the autumn. A GfK savings index rose in July to its strongest level since 2007.

Bank of England to cut another 0.25 percentage point off the main rate

The Bank of England is expected to shave another 0.25 percentage point off its main rate, taking it to 4% this Thursday with signs of the labor market is cooling following Chancellor Rachel Reeves’ April tax increases and rising global trade tensions.

Yet inflation is at a 17-month high, running hotter than the Bank forecast in May. Governor Andrew Bailey is expected to urge caution on further easing. While energy bills and other temporary factors have driven prices up, officials fear that higher wage demands could push costs even higher.

Lower rates have cost savers nearly £5 billion in lost earnings on cash deposits, including tax-free Individual Savings Accounts as well as time and sight accounts, based on the total stock of deposits and effective rates through the last year.

Furthermore, households are paying about £6 billion more each year in interest on unsecured debts and mortgages than they were 12 months ago. In comparison, the US household debt also hit a record $18.2 trillion, based on an earlier report by Cryptopolitan.

The Bank warns more borrowers will shift onto higher rates in the coming months, estimating that a typical homeowner could pay about £1,300 extra a year in mortgage costs over the coming 2 years. Approximately 1 million people have fixed deals above today’s rates and must wait before benefiting from cheaper credit.

Since July 2024, just before the first cut, the average rate rose by about 0.2 percentage points on on the UK’s mortgage stock.

Economists expect the Bank of England to stick to its easing cycle once every quarter, taking rates to approximately 3.5% by spring, 2026.

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