Bank of England Cuts Base Rate to 4%

The Bank of England (BoE) has reduced its benchmark base rate from 4.25% to 4%, marking the fifth quarterly cut since August 2024 and bringing rates to their lowest level since March 2023.

Why the BoE Made the Cut

Policymakers are responding to a softening UK economy characterised by slowing growth, rising unemployment, and muted wage gains. At the same time, inflation remains stubbornly above the 2% target, driven primarily by food and energy prices as well as higher labour costs.

The Monetary Policy Committee's decision was narrowly reached (a 5–4 vote) and required the first-ever second round of voting, highlighting deep divisions over the right approach. The BoE emphasised the need to proceed “gradually and carefully” with further easing and indicated the outlook remains uncertain.

What This Means for Homeowners

Tracker and variable-rate borrowers benefit immediately
Those on tracker mortgages or standard variable rate (SVR) loans will see lower monthly payments, though the actual reduction depends on their lender.

Tracker mortgage holders save around £29 per month on average
Roughly 590,000 borrowers with tracker deals stand to benefit significantly from this rate cut.

Fixed-rate borrowers may not benefit until their deals expire
If you are on a fixed-rate mortgage, you may need to wait until your term ends to take advantage of lower rates. However, new fixed deals are already trending cheaper, with some lenders offering rates below 3.8% for well-qualified buyers.

Mortgage market returning to normality
Two-year fixed mortgage rates have dipped below five-year rates for the first time since the 2022 turmoil, reflecting improving market confidence.

Impact on Savers

Savings rates likely to fall further
A lower base rate typically leads banks to reduce interest on savings. Easy-access accounts may see declines, though the best fixed-rate bonds still offer relatively strong yields in the short term.

Savers should be proactive
It is advisable to shop around and switch providers to secure the best returns before rates dip further.

A Delicate Balancing Act

This cut reflects a shift toward a more accommodative monetary policy aimed at stimulating consumer spending and averting deeper economic stagnation. Yet, with inflation still elevated at around 3.6% and forecasted to rise further in the short term, particularly due to food costs, the BoE is treading cautiously.

Analysts expect the BoE may introduce one more cut later in the year, likely around November, as long as inflation cools and economic conditions do not worsen.

Final Takeaways

Homeowners on tracker or SVR mortgages can expect lower payments soon.
Fixed-rate mortgage holders should review their options, as new deals are becoming more attractive.
Savers should move quickly to lock in higher returns before rates drop further.
Overall, the BoE is acting carefully, and further cuts are possible if inflation and the economy allow.

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