Mortgage experts believe another rate cut before the end of the year is now more likely after the economy came to a standstill in July.
Estimates from the Office for National Statistics suggest that gross domestic product (GDP), the value of goods and services produced in Britain, showed no growth in July after also leveling off in June.
It means that GDP is estimated to have grown by 0.5% in the three months to July 2024, compared to the three months to April 2024.
This lack of growth came as a surprise; the expectation was that the British economy would have received a boost by the following July Labour’s landslide victory at the general election and events such as the European Championships and the Olympic Games.
But it could also mean that Bank of England decision-makers will have to take action in the form of a rate cut. With the next decision due next week – on Thursday, September 19 – some believe a reduction is imminent.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “Consumers and businesses may now be hoping that the subdued GDP figures may prompt the Bank of England to press ahead with a new interest rate reduction.
“The quarter-point interest rate cut early last month is already trickling down to personal finance products, as mortgage rates have fallen and key savings deals have peaked.
“Those struggling with heavy debts or high home loan repayments will now be hoping for another cut sooner rather than later.”
She added: “The BoE has signaled its willingness to cut rates again, but insists it must carefully assess domestic price pressures before taking another step.
“Many economists had expected the BoE to delay a second rate cut until later this year, but two months of stagnant growth could trigger a change of course.”
Haine is not the only one predicting an interest rate cut.
Anita Wright, an independent financial advisor at Bolton James spoke to the Newspage office. She said flat GDP was a “clear signal” that the UK economy was stagnating.
“The Bank of England has walked a fine line between controlling inflation and avoiding a recession,” she continued.
“With growth at a standstill and consumer confidence shaky, [the Bank of England] is facing increasing pressure to rethink its approach. Inflation may still be a pressing concern, but the narrative is shifting, and stagnant growth can no longer be ignored. The Bank of England may be forced to revise its position sooner rather than later, especially if further economic weakness creeps in in the coming months.
“While inflation has dominated policy decisions, the BoE cannot afford to let a recession take hold in the background. If growth stalls, a rate cut before the end of the year could become a necessary tool to build momentum. It is no longer a question of whether they will cut the base rate: it is a question of how quickly they will pull the trigger.”
What does this mean for your mortgage?
Mortgage rates continue to fall, with Barclays and Halifax among the lenders to have made price cuts since we published. update on the fixed rate mortgage cuts earlier this week.
This, combined with another rate cut by the Bank of England, will obviously be good news for borrowers.
But the flat GDP is a sign that the struggle over the cost of living for households continues. And brokers warn that people getting rid of historically low mortgage rates should still prepare for a big price increase if they refinance.
Emma Jones, director of Whenthebanksaysno.co.uk also speaking via Newspage said: “An interest rate cut is urgently needed because of this GDP data. Let’s hope the Bank of England cuts again before the end of the year. It’s a clear sign that people are struggling, so a rate cut will ease the pain for many.
“The next six months will still be very painful for more borrowers coming off long-term fixed deals with ultra-low interest rates.”