Bank of England Cuts Interest Rates. What Does It Mean for You?

The Bank of England has cut interest rates by a quarter point to 4.25% on Thursday, as it prepares for the consequences of Donald Trump’s trade policy.

What does this mean for your mortgage, savings and the wider economy? And will rates keep falling? 

Why Are Interest Rates Going Down?

The Bank’s base rate determines how much it costs banks to borrow money. That trickles down to what you pay on loans or earn on savings.

Currently, inflation (the rate at which prices rise) is at 2.6%, down from its painful peak of 11.1% in 2022. The Bank’s target is 2%, and with inflation cooling, cutting rates could help stimulate spending and economic growth.

But it’s not only about inflation. The global economy is in flux thanks in part to Donald Trump’s sweeping new tariffs, which have thrown trade into chaos. Hence, the easing in monetary policy.

Governor Andrew Bailey has promised a "careful and gradual" approach, but some analysts think rates could reach as low as 3.5% this year should the economy need a bigger boost.

What Does This Mean for Mortgages?

If you’re one of the 600,000 homeowners with a tracker mortgage, the rate cut will immediately trim your monthly payments. But most people are on fixed-rate deals, meaning they won’t feel the benefit until they remortgage.

Mortgage rates are still high compared with the past decade. The average two-year fixed rate is 5.16%, and a five-year deal sits at 5.09%. That’s a big jump from the ultra-low rates many got used to.

Worse still, 800,000 fixed-rate mortgages (at 3% or below) expire each year until 2027. Those homeowners are in for a nasty shock when they remortgage at today’s higher rates.

The silver lining, though, is that lenders have already started trimming rates in anticipation of further Bank of England cuts. If you’re shopping for a new deal, things might get a little easier.

Savings & Loans

Whereas borrowers cheer, savers might groan. Lower interest rates mean less return on savings accounts. If you’ve been enjoying decent rates, now might be the time to lock in a fixed-rate savings deal before they dip further.

For credit cards and personal loans, the cut means borrowing could get slightly cheaper.

Conclusion

The Bank of England has cut interest rates to try and keep the economy moving as inflation cools and global trade becomes more uncertain. If you have a tracker mortgage, you’ll see some savings right away. If you're on a fixed deal, you may need to wait until your current rate ends.

Borrowing might get cheaper, but savers could see lower returns. More rate cuts could be coming, and if you're borrowing or saving, keep an eye on what the Bank does next.