Anticipates Further Two Interest Rate reductions from Lloyds Bank's Charlie Nunn in 2025
High UK Interest Rates Dominate 2023, Impacting Mortgage Borrowing
In a year marked by economic uncertainty, the Bank of England maintained high interest rates, with no cuts in 2023. The Bank's Base Rate was expected to peak at around 5.3% towards the end of the year, according to forecasts made in mid-2025. This high-rate environment had a significant impact on mortgage borrowing.
The elevated Bank Rate near or above 5% in 2023 pushed up mortgage interest rates, making borrowing more expensive and potentially reducing affordability for many borrowers. As a result, demand for new borrowing, remortgaging, and house purchases likely slowed, dampening the housing market activity in 2023.
However, the monetary easing through rate cuts began in 2024, aiming to ease borrowing conditions and support the economy. The Bank of England started gradually cutting interest rates from August 2024, by a total of about 1 percentage point through mid-2025. When these cuts were implemented, mortgage rates started to soften, easing borrowing costs and potentially supporting renewed mortgage demand.
Meanwhile, the banking sector also saw significant developments. Lloyds Banking Group, the biggest provider of mortgages in the UK, reported a half-yearly profit of £3.5bn. The bank benefited from high interest rates set by the Bank of England at 4.25%. However, the anticipated cuts could make borrowing cheaper, impacting the bank's profitability.
The head of Lloyds Banking Group, Charlie Nunn, expects two more interest rate cuts this year. If the anticipated cuts occur, the base interest rate could reach 3.75%. Mr. Nunn forecasts house price growth of between 2 and 3%.
Despite the challenging interest rate environment, Lloyds Banking Group helped 34,000 first-time buyers in the first half of the year. While this is a decrease from the 64,000 first-time buyers the group helped last year, the increase in first-time buyers was largely due to changes in stamp duty in Q1 of the year.
The rising cost of borrowing and government spending U-turns have put pressure on Chancellor Rachel Reeves' vow to bring down debt. Meanwhile, industry leaders like Mr. Nunn have warned against raising taxes on financial services, citing it as one of the highest taxed sectors in the world.
In summary, 2023 featured high UK interest rates with limited or no cuts, leading to higher mortgage costs and subdued borrowing. The monetary easing through rate cuts mainly started after 2023, aiming to ease borrowing conditions and support the economy from 2024 onwards. The banking sector, represented by Lloyds Banking Group, navigated these challenges, reporting significant profits despite the challenging economic conditions.
- Due to high UK interest rates in 2023, investing in wealth-management products that are less sensitive to rate changes could be an attractive option for those seeking to safeguard their personal-finance, with the potential for long-term returns.
- As the Bank of England cut interest rates from 2024, many individuals might consider re-evaluating their investment strategies in personal-finance and business sectors, taking advantage of reduced borrowing costs and exploring opportunities in areas such as starting or expanding a business.
- The anticipated interest rate cuts in 2023 could also have an impact on wealth-management and business strategies. With reduced interest rates, wealthy individuals may look for better investment opportunities in both personal-finance and the broader economy, as the cost of borrowing becomes more affordable.
