The average two-year mortgage rate has fallen below 5% for the first time since the Liz Truss mini-budget.

The interest rate charged on a typical two-year fixed mortgage deal is now 4.99%, according to financial information company Moneyfacts.

It means there are more expensive and also cheaper two-year mortgage products on the market, but the average has fallen to a near three-year low.

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Not since September 2022 has the average been at this level, before former prime minister Liz Truss announced her so-called mini-budget.

The programme of unfunded spending and tax cuts, done without the commentary of independent watchdog the Office for Budget Responsibility, led to a steep rise in the cost of government borrowing and necessitated an intervention by monetary regulator the Bank of England to prevent a collapse of pension funds.

It was also a key reason mortgage costs rose as high as they did – up to 6% for a typical two-year deal in the weeks after the mini-budget.

Why?

The mortgage borrowing rate dropped on Wednesday as the base interest rate – set by the Bank of England – was cut last week to 4%. The reduction made borrowing less expensive, as signs of a struggling economy were evident to the rate-setting central bankers and despite inflation forecast to rise further.

It’s that expectation of elevated price rises that has stopped mortgage rates from falling further. The Bank had raised interest rates and has kept them comparatively high as inflation is anticipated to rise faster due to poor harvests and increased employer costs, making goods more expensive.

The group behind the figures, Moneyfacts, said “While the cost of borrowing is still well above the rock-bottom rates of the years immediately preceding that fiscal event, this milestone shows lenders are competing more aggressively for business.”

In turn, mortgage providers are reluctant to offer cheaper products.

A further cut to the base interest rate is expected before the end of 2025, according to London Stock Exchange Group (LSEG) data. Traders currently bet the rate will be brought to 3.75% in December.

This expectation can influence what rates lenders offer.

For around 700,000 teenagers on the treadmill that is the English education system, the A and T-level results that drop this week may be the most important step of all.

They matter because they open the door to higher education, and a crucial life decision based on an unwritten contract that has stood since the 1960s: the better the marks, the greater the choice of institution and course available to applicants, and in due course, the value of the degree at the end of it.

A quarter of a century after Tony Blair set a target of 50% of school-leavers going to university, however, the fundamentals of that deal have been transformed.

Today’s prospective undergraduates face rising costs of tuition and debt, new labour market dynamics, and the uncertainties of the looming AI revolution.

Together, they pose a different question: Is going to university still worth it?

Huge financial costs

Of course, the value of the university experience and the degree that comes with it cannot be measured by finances alone, but the costs are unignorable.

For today’s students, the universal free tuition and student grants enjoyed by their parents’ generation have been replaced by annual fees that increase to £9,500 this year.

Living costs meanwhile will run to at least £61,000 over three years, according to new research.

Together, they will leave graduates saddled with average debts of £53,000, which, under new arrangements, they repay via a “graduate tax” of 9% on their earnings above £25,000 for up to 40 years.

A squeezed salary gap

As well as rising fees and costs of finance, graduates will enter a labour market in which the financial benefits of a degree are less immediately obvious.

Graduates do still enjoy a premium on starting salaries, but it may be shrinking thanks to advances in the minimum wage.

The Institute of Student Employers says the average graduate starting salary was £32,000 last year, though there is a wide variation depending on career.

With the minimum wage rising 6% to more than £26,000 this April, however, the gap to non-degree earners may have reduced.

A reduction in earning power may be compounded by the phenomenon of wage compression, which sees employers having less room to increase salaries across the pay scale because the lowest, compulsory minimum level has risen fast.

Taken over a career, however, the graduate premium remains unarguable.

Government data shows a median salary for all graduates aged 16-64 in 2024 of £42,000 and £47,000 for post-graduates, compared to £30,500 for non-graduates.

Graduates are also more likely to be in employment and in highly skilled jobs.

There is also little sign of buyer’s remorse.

A University of Bristol survey of more than 2,000 graduates this year found that, given a second chance, almost half would do the same course at the same institution.

And while a quarter would change course or university, only 3% said they would have skipped higher education.

No surprise then that industry body Universities UK believes the answer to the question is an unequivocal “yes”, even if the future of graduate employment remains unclear.

“This is a decision every individual needs to take for themselves; it is not necessarily the right decision for everybody. More than half the 18-year-old population doesn’t progress to university,” says chief executive Vivienne Stern.

“But if you look at it from a purely statistical point of view, there is absolutely no question that the majority who go to university benefit not only in terms of earnings.”

‘Roll with the punches’

She is confident that graduates will continue to enjoy the benefits of an extended education even if the future of work is profoundly uncertain.

“I think now more than ever you need to have the resilience that you acquire from studying at degree level to roll with the punches.

“If the labour market changes under you, you might need to reinvent yourself several times during your career in order to be able to ride out changes that are difficult to predict. That resilience will hold its value.”

The greatest change is likely to come from AI, the emerging technology whose potential to eat entry-level white collar jobs may be fulfilled even faster than predicted.

The recruitment industry is already reporting a decline in graduate-level posts.

Anecdotally, companies are already banking cuts to legal, professional, and marketing spend because an AI can produce the basic output almost instantly, and for free.

That might suggest a premium returning to non-graduate jobs that remain beyond the bots. An AI might be able to pull together client research or write an ad, but as yet, it can’t change a washer or a catheter.

It does not, however, mean the degree is dead, or that university is worthless, though the sector will remain under scrutiny for the quality and type of courses that are offered.

The government is in the process of developing a new skills agenda with higher education at its heart, but second-guessing what the economy will require in a year, never mind 10, has seldom been harder.

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Universities will be crucial to producing the skilled workers the UK needs to thrive, from life sciences to technology, but reducing students to economic units optimised by “high value” courses ignores the unquantifiable social, personal, and professional benefits going to university can bring.

In a time when culture wars are played out on campus, it is also fashionable to dismiss attendance at all but the elite institutions on proven professional courses as a waste of time and money. (A personal recent favourite came from a columnist with an Oxford degree in PPE and a career as an economics lecturer.)

The reality of university today means that no student can afford to ignore a cost-benefit analysis of their decision, but there is far more to the experience than the job you end up with. Even AI agrees.

Ask ChatGPT if university is still worth it, and it will tell you: “That depends on what you mean by worth – financially, personally, professionally – because each angle tells a different story.”

The rate of wage rises in the UK continued to slow as the number of job vacancies and people in work fell, according to new figures.

Average weekly earnings slowed to 4.6% down from 5%, while pay excluding bonuses continued to grow 5%, according to data from the Office for National Statistics (ONS) for the three months to June.

It means the gap between inflation – the rate of price rises – and wage increases is narrowing, and the labour market is slowing. Inflation stood at 3.6% in June.

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The number of employees on payroll has fallen in ten of the last 12 months, with the falls concentrated in hospitality and retail, the ONS said. It came as employers faced higher wage bills from increased minimum wages and upped national insurance contributions.

As a result, it’s harder to get a job now than a year ago.

“Job vacancies, likewise, have continued to fall, also driven by fewer opportunities in these industries,” the ONS director of economic statistics, Liz McKeown, said.

The number of job vacancies fell for the 37th consecutive period and in 16 of the 18 industry sectors. Feedback from employers suggested firms may not be recruiting new workers or replacing those who left.

Unemployment remained at 4.7% in June, the same as in May.

The ONS, however, continued to advise caution in interpreting changes in the monthly unemployment rate due to concerns over the figures’ reliability.

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The exact number of unemployed people is unknown, partly because people do not respond to surveys and answer the phone when the ONS calls.

The worst is yet to come

Wage rises are expected to fall further, and redundancies are anticipated to rise.

“Wage growth is likely to weaken over the course of the year as softening economic conditions, rising redundancies and elevated staffing costs increasingly hinder pay settlements,” said Suren Thiru, the economics director of the Institute of Chartered Accountants in England and Wales (ICAEW).

“The UK jobs market is facing more pain in the coming months with higher labour costs likely to lift unemployment moderately higher, particularly given growing concerns over more tax rises in this autumn’s budget.”

What does it mean for interest rates?

While wage rises are slowing, the fact that they’re still above inflation means the interest rate setters of the Bank of England could be cautious about further cuts.

Higher pay can cause inflation to rise. The central bank is mandated to bring down inflation to 2%.

But one more interest rate cut this year, in December, is currently expected by investors, according to data from the London Stock Exchange Group (LSEG).

The evidence of a weakening labour market provides justification for the interest rate cut of last week.