The interest rate cut will be a boost for some homeowners, but the Bank of England signalled that a mortgage shock still lay ahead for others.
Around a third of people with a fixed-rate mortgage are still paying less than 3%, after getting a deal when interest rates were a great deal lower.
The Bank said that most of these home loans will expire before the end of 2026 “meaning that effective interest rates will rise somewhat further over that period”.
The inflation rate – which measures the pace of price rises for goods and services – hit the Bank’s 2% target in May and has remained there.
But core inflation, which strips out volatile elements such as food and fuel prices, remains relatively high. And the Bank expects inflation to rise in the second half of this year as energy bills tick higher in the colder months.
The Bank noted that wage growth – which can worsen inflation – had slowed but committee members continued to monitor it.
The Bank does not, however, expect a recent public sector pay rise promised by Chancellor Rachel Reeves to have a major impact on inflation.
Chancellor Rachel Reeves confirmed offers of wage increases of between 5% and 6% for public sector staff including NHS workers and teachers on Monday.
Ms Reeves said the Bank’s decision to cut rates was “welcome”, but added that “millions of families” still faced higher mortgage rates because of former Prime Minister Liz Truss’s mini-budget.
She added that the government was “taking the difficult decisions” to fix the economy after “years of low growth”.
But Conservative former prime minister Rishi Sunak said on X that Labour’s “inflation-busting public sector pay rises” would put further interest rate cuts at risk, external.
