The news in short
On 8 May 2025, the Bank of England (BoE) lowered its base rate by 0.25%, from 4.5% to 4.25% – the second reduction this year.
This decision, prompted by inflation easing to 2.6% in March, aims to bolster economic growth amid global trade uncertainties, particularly from proposed US tariffs.
The Monetary Policy Committee’s (MPC) 5-4 vote highlighted divisions, with some members pushing for a larger cut of 0.5% or maintaining the rate, reflecting some lingering concerns over inflation and economic stagnation.
What it means for households
In the first instance, the cut in the base rate will take some pressure off households with debts such as mortgages and credit cards. However, in practice, it’s much more complicated than this.
Most households with mortgages tend to be on fixed rates – around 86%, according to BoE data. This means there will be no impact on these mortgage holders until their fixed rates expire.
But for those close to that expiry date or actively looking for deals, this is potentially good news. That being said, the mortgage market prices itself around swap rates – not just the BoE base rate – which means again, in practice, the relationship with average rates depends on many factors.
For savers, the outlook is more obviously negative. Inflation is still above the 2% target set by the BoE, which means savers need to ensure they’re getting a good rate on their cash savings. But savings market watchers such as Moneyfactscompare.co.uk warn that savings rates are clearly falling as rate expectations lower.
Outlook for rates, inflation and the economy
The BoE has forecast that the UK economy will struggle along for the rest of the year.
It sees inflation rising to 3.7%, which is of concern – but these are largely due to one-off issues that will see price rises slow again in time.
For that reason, the MPC looks set to continue cutting its base rate to try stimulate economic growth. That being said, everything is highly uncertain thanks to global economic forces and geopolitical concerns.
Major financial institutions such as Goldman Sachs acted with surprise that the committee seemed more reticent about rate cuts than financial markets expected.
Markets have forecast for rate cuts to go as low as 3.5% this year. This remains the view of major banks such as Barclays. But the reality is any number of issues could still derail or alter the outlook.
Takeaways and the role of financial planners
The base rate cut provides relief for borrowers but poses challenges for savers. Tracker and variable-rate mortgage holders should assess potential savings and adjust budgets, while those on fixed rates might explore remortgaging options.
Savers could benefit from locking in competitive fixed-rate accounts before rates fall further. But as deals diminish, it is increasingly important to ensure your portfolio is working as hard as possible, using tools such as investing to provide the best opportunity for income or growth (or both).
Given the economic uncertainty, consulting a financial planner is essential if you’re in any doubt. A planner can assess individual circumstances, recommend tailored strategies for savings, investments and mortgages, and ensure financial plans remain robust.
With inflation, trade disruptions, and rate changes on the horizon, professional guidance helps households stay on track, safeguarding your long-term financial stability.
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