The Bank of England has cut the base rate once again, this time from 4.5% to 4.25%, the lowest it’s been since mid-2023. While it may sound like just another headline, this small change has a big ripple effect on your financial life, especially if you have a mortgage, savings, or loans.
But why has the rate been cut, and what does it actually mean for your money? Let’s break it down.
First, what is the base rate?
The base rate is the interest rate the Bank of England charges other banks and lenders when they borrow money. In turn, those lenders use it to set the rates you see on mortgages, savings accounts, loans, and credit cards.
The base rate also plays a key role in managing inflation, the rate at which prices rise. The government has set a target inflation rate of 2%, and interest rate changes are one of the Bank’s main tools to steer inflation back toward that level.
So far, we’ve seen consistent progress. Inflation dropped to 2.6% in March, down from 2.8% the month before. That may still be slightly above target, but the bigger-than-expected fall signals that the worst of the inflation spike may be behind us.
How was the decision made?
The Bank’s Monetary Policy Committee (MPC) voted narrowly, 5 in favour, 4 against to lower the rate by 0.25 percentage points. Interestingly:
Two members wanted to hold the rate steady
Two others pushed for a bigger cut to 4%
The remaining five supported the final decision to reduce to 4.25%
There’s clearly a consensus that cuts are now appropriate, especially as global economic pressures — including high energy costs and supply chain issues — have begun to ease.
What does the base rate cut mean for your mortgage?
If you’re on a fixed-rate mortgage
Nothing changes for now. Your rate is locked in until your deal ends. However, it’s worth noting that new fixed-rate mortgage deals have already started creeping down in anticipation of this cut.
Two-year fixed deals now start from around 3.79%, and five-year deals from 3.83%, depending on your credit profile and deposit.
TIP: You can usually lock in a new mortgage rate 3 – 6 months before your fixed deal ends, helping you avoid being moved onto your lender’s more expensive Standard Variable Rate (SVR).
If you’re on a tracker mortgage
You’ll see your rate drop automatically by 0.25%, as tracker deals are directly tied to the base rate. That’s a real-world saving of about £15 a month for every £100,000 you’ve borrowed.
The change usually takes effect within days to a few weeks, depending on your lender’s processes.
If you’re on your lender’s SVR
Your Standard Variable Rate might drop, but it’s not guaranteed. Lenders can set SVRs however they like — although many choose to adjust them in line with base rate movements.
Typical SVRs are still around 7.5%, so if you’re on one, this is a great time to look at switching to a fixed or tracker deal. You could save hundreds or even thousands a year.
What this means for your savings
- Easy-access savings: Rates will likely fall by around 0.25% over the next few weeks. If you’re earning over 5% interest now, that may not last much longer, so it could be a good time to act.
- Fixed-rate savings: These have already factored in some of the rate cuts. Expect some providers to trim rates further in the coming days. If you’re considering locking in a fixed rate, it might be wise to secure it now.
If you haven’t yet used your full £20,000 annual ISA limit, now’s a smart time to take advantage especially as future changes to the allowance may be on the horizon.
What about credit cards and loans?
- Credit cards: These aren’t usually tied directly to the base rate. Most APRs remain high (often above 24%), so expect little impact. However, we may see lenders offer longer 0% introductory deals as competition heats up.
- Personal loans: If you’ve already taken out a loan, your rate likely won’t change, as most are fixed. For new loans, rates may fall slightly, but lenders tend to price based on long-term forecasts rather than short-term base rate shifts.
Why is the base rate being cut?
This move reflects the Bank’s strategy to support the economy while steering inflation back toward its target. With inflation falling faster than expected and economic uncertainty easing, including falling global energy prices, a stronger pound, and more retail price competition, there’s room to reduce interest rates without overheating the economy.
Will there be more cuts?
One more cut could come, depending on how inflation and economic growth unfold. If you’re considering a new mortgage or savings product, it’s worth keeping an eye on the next announcement.
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