The Bank of England has cut interest rates from 4.75% to 4.5%. This marks the lowest rate since June 2023 and the third cut in just over 6 months. While this move aims to support growth, it comes with both advantages and challenges.
Why Have Interest Rates Been Cut to 4.5%?
The decision to lower interest rates follows concerns over slowing economic growth. The Bank of England has downgraded its UK growth forecast for 2025 to just 0.75%, down from the previous estimate of 1.5%. With inflationary pressures still a concern, the interest rate cut is an effort to balance growth while keeping inflation in check.
The Monetary Policy Committee (MPC) voted 7-2 in favour of the cut. The 2 members who disagreed actually wanted a bigger reduction to 4.25%. Despite differences in approach, there are a broad agreement on the need to ease monetary policy.
How Will This Affect Mortgage Borrowers?
For mortgage borrowers, a lower interest rate usually means cheaper borrowing costs. Those on tracker mortgages will see immediate benefits, as their rates follow the Bank of England’s base rate.
However, if you have a fixed-rate mortgage, your payments will stay the same until your current deal ends. If you are booking a re-mortgage, lower rates may help you secure a better deal. Current market conditions suggest mortgage rates could dip further in the coming months, especially if additional rate cuts happen later in the year.
What About Savings?
Lower interest rates are bad news for savers. When the base rate falls, banks tend to reduce the interest they offer on savings accounts. Already some banks have cut rates on fixed-term savings products.
The best easy-access accounts still offer around 4.85% but these could drop soon. If you are relying on interest from savings, now might be a good time to shop around for the best deals, including fixed-rate accounts or ISAs.
The Bigger Economic Picture
The UK economy is facing mixed signals. While the rate cut may help borrowers, business confidence remains weak. Many firms are struggling with high costs and concerns over tax burdens and trade policies are adding to uncertainty.
Rising water bills, energy costs and transport fares will likely push inflation higher later this year. The Bank of England’s goal is to bring inflation back to its 2% target, but it warns that progress could be slow.
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