Bank of England rate: mortgage relief as Bank of England cuts rate to 4% - what change means for you
Homeowners could see welcome savings on repayments, but savers may need to act fast 📉
- The Bank of England has lowered its base rate to 4%, the lowest since March 2023
- Those on tracker mortgages and some fixed-rate borrowers are set to see monthly payments fall
- Banks are expected to trim savings account rates in coming weeks
- Rising food and energy costs could slow or pause future cuts
- Further reductions may not come until November if inflation stays high
The Bank of England has cut interest rates to 4%, the lowest level since March 2023, in a move set to bring some relief to mortgage borrowers, but with a warning that the path ahead is “uncertain”.
The quarter-point cut, decided by the Bank’s Monetary Policy Committee (MPC) after a tense split vote, marks the fifth reduction since last year, when rates peaked at 5.25%.
While Governor Andrew Bailey said the “path continues to be downwards”, he stressed that inflation pressures could still derail further cuts.
What’s happening?
The decision comes despite the UK seeing inflation rise to 3.6% in June, its highest in 18 months. The Bank now expects inflation to hit 4% in September before easing in the final months of the year.
Rising energy and food costs — particularly beef, chocolate, and coffee — are driving the increases, with food inflation forecast to reach 5.5% by Christmas.
While falling pay growth and reduced uncertainty over US trade tariffs encouraged the cut, the Bank remains wary. Inflation is still expected to run hotter than previous forecasts for the next two years, only dipping below its 2% target in 2027.
The MPC has three more meetings in 2025 to set interest rates. Markets currently expect the base rate to fall to around 3.5% next year, but this will depend on whether inflation continues to cool and the jobs market weakens.
What does it mean if I have a mortgage?
If you’re on a tracker mortgage, the change will have an immediate impact, cutting the average bill by around £29 a month.
Lenders had already been pricing in a rate cut, meaning fixed-rate deals have been dropping in recent months, with some now dipping below 4%.
For homeowners coming to the end of a fixed deal, this is good news. But experts warn not to assume rates will keep falling quickly.
Several economists now think the next cut may not come until November, and the Bank’s cautious tone suggests there’s a chance of a pause if inflation proves stickier than hoped.
So, if your fix ends soon, start shopping around now. You can usually secure a rate up to six months before your current deal ends, locking in today’s lower offers while keeping flexibility if rates improve further.
What it means for savers
Savers will be the losers from this cut. Banks and building societies are expected to trim interest rates on easy-access and fixed-term savings accounts over the coming weeks. If you find a competitive rate now, consider locking it in before deals disappear.
Hunt out top-paying fixed-rate or notice accounts now, especially if you don’t need instant access to your money.
Keep an eye on September’s inflation figure, it could affect everything from benefit increases to the state pension under the triple lock.
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