The Bank of England has cut the base rate this month as expected
We’ve taken a look at the thinking behind this latest decision, and whether we’re likely to see any cuts next year.
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What is the Bank of England base rate?
The interest rate set by the Bank of England (BoE) is known as the base rate.
The current rate was decided on 6 February 2025, cut to 4.5%, after being held at 4.75% in December last year. This is the lowest rate since May and June 2023.
source: tradingeconomics.com
We saw cuts in August and November 2024 which were the first after seven consecutive pauses. This followed a run of 14 consecutive increases moving from 0.1% in early December 2021, a total change of 5.15% percentage points. It was cut to a record low of 0.1% at the start of the pandemic in 2020.
| Date of announcement | Rate | Change |
| February 2025 | 4.5% | -0.25 percentage points |
| December 2024 | 4.75% | No change |
| November 2024 | 4.75% | -0.25 percentage points |
| September 2024 | 5% | No change |
| August 2024 | 5% | -0.25 percentage points |
| June 2024 | 5.25% | No change |
| May 2024 | 5.25% | No change |
| March 2024 | 5.25% | No change |
| February 2024 | 5.25% | No change |
| December 2023 | 5.25% | No change |
| November 2023 | 5.25% | No change |
| September 2023 | 5.25% | No change |
| August 2023 | 5.25% | +0.25 percentage points |
| June 2023 | 5% | +0.5 percentage points |
| May 2023 | 4.5% | +0.25 percentage points |
| March 2023 | 4.25% | +0.25 percentage points |
| February 2023 | 4% | +0.5 percentage points |
| December 2022 | 3.5% | +0.5 percentage points |
| November 2022 | 3% | +0.75 percentage points |
| September 2022 | 2.25% | +0.5 percentage points |
| August 2022 | 1.75% | +0.5 percentage points |
| June 2022 | 1.25% | +0.25 percentage points |
| May 2022 | 1% | +0.25 percentage points |
| March 2022 | 0.75% | +0.25 percentage points |
| February 2022 | 0.5% | +0.25 percentage points |
| December 2021 | 0.25% | +0.15 percentage points |
| March 2020 | 0.1% | -0.15 percentage points |
Why the base rate changes
The driver for changing rates right now is inflation, which has been higher than wanted since late 2021.
Increasing interest rates is seen as the key (perhaps only) way to battle inflation, the idea being we’ll save more or have more expensive debts (like mortgages), leading to us spending less. This will force suppliers to lower prices, which in turn will see the inflation rate drop (though in most cases that doesn’t mean prices fall, they just get more expensive at a slower rate).
However, those rate hikes take time to filter down and for the inflation rate to – in theory – come under control. And if you keep increasing rates the danger is it pushes the economy into recession and cause hardship for borrowers, particularly those with mortgages.
Likewise if the Bank decides to cut the rate too early, it might not have done enough, leading to a reverse later on.
Will interest rates continue to fall in 2025?
Last year we expected a number of cuts that didn’t happen and many will be wondering whether this latest cut is the delayed start of the predicted reductions.
Seven members of the Monetary Policy Committee (MPC) voted to reduce the base rate to 4.5% while two wanted to cut it to 4.25%. They decided, based on ‘sufficient progress on disinflation’ in domestic prices and wages, that a ‘gradual and careful’ approach was the way to go.
It’s been a bit of a wild time economically recently. Literally in the days before the MPC meeting, we saw announcements from Trump about introducing trade tariffs which have created a lot more economic uncertainty around the world.
The committee acknowledged this in the minutes but said as it’s a rapidly evolving situation we’ll only know the true impact when the policies have been decided. However, it could prove inflationary and this will have an impact on UK interest rates.
So what can we expect this year?
Bank of England governor Andrew Bailey said the committee will consider cutting rates again soon – but they’ll be taking a careful approach.
He said: “We expect to be able to cut bank rate further as the disinflation process continues, but we will have to judge meeting by meeting, how far and how fast.”
“We live in an uncertain world, and the road ahead will have bumps on it.”
One of these bumps seems to be the temporary spike in inflation to 3.7% in April, as predicted in the The Bank of England’s Monetary Policy report as a result of rising energy costs – which will factor in to the MPC’s decisions.
Opinions are divided on how many cuts we’ll see this year. Markets are predicting two or three whereas some economists are suggesting as many as five.
Of course, as ever there’s uncertainty around what will happen – everything can change and none of this is guaranteed!
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When is the next interest rate decision?
The rate is set every six weeks or so by the Bank of England Monetary Committee, a group of nine people, with the majority vote deciding whether the rate goes up, down or stays the same. The December 2024 decision was six who wanted it to stay at 4.75%, and three in favour of a 0.25% cut to 4.5%.
The next meetings will be on:
- 20 March 2025
- 8 May 2025
- 19 June 2025
- 7 August 2025
- 18 September 2025
- 6 November 2025
- 18 December 2025
Why it matters
The BoE rate is a large part of what high street and online banks and lenders use to inform the rates they offer. This means it will impact the cost of borrowing on things like mortgages, loans and credit cards, but also how much you can earn on savings.
Sometimes it’s a direct correlation if you have a product with a tracker rate – something that literally changes up or down in line with the BoE rate. In that case you’ll see an instant change.
On other products you might not see an instant change – if at all. So it pays to shop around to see if you can get a better deal.
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How it impacts your savings
The increases in the base rate were good news for savers. We’ve been earning very poor levels of interest, but that started to change in late 2021, and got better and better.
But that’s been changing since rates peaked in the autumn of 2023. Since then rates have generally been falling as banks price in the predicted cuts (they’re fast to pass these on, but slow to give us the increases).
Many popular easy access savings accounts are now tracker rates, so they’ll be dropping imminently in line with the cut. And since others are variable, they’ll likely to do the same. We’ve been seeing rates drop for some time now but we expect to be kept busy over the next few days and weeks updating our best buy tables.
The highest-paying savings accounts
- 6% AER current account from Santander (limited to £4,000 deposit and has monthly fee)
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- 5.12% AER easy access Cash ISA from Trading 212
Read more about these and the other best savings accounts in our best buys guide
How the base rate impacts your mortgage
The decision means existing tracker rate deals will also drop by 0.25 percentage points. If you’re on your lender’s variable rate or SVR you might see it come down too.
And if you’re already on a fixed-rate mortgage (which most people are) nothing will change – for the time being.
It can be confusing to homeowners that despite the base rate being lower now compared to a year ago, average mortgage rates are actually higher. This is because while mortgages rates are directly based on the base rate. They’re actually influenced by swap rates.
So many longer term fixes will have priced in changes to the base rate on previous predictions, but if we’re expecting further cuts to take more time to come through, it could mean there’s not much movement downwards on new fixes for now.
It’s always worth speaking with a mortgage broker who can advise on different strategies – though since no one knows what will happen this still won’t guarantee any savings.
And anyone who is really struggling to make their repayments, it’s important to talk to your lender to see if anything can be worked out – though bear in mind missing payments can impact your credit report.
If it’s impacting other essential spending, then see whether those companies can support reduced repayments. And if debts have built up, speak to a debt charity.
How it impacts other borrowing
With this change to the base rate, you’re still unlikely to see much difference to the rates of your existing loans or new deals.
Regardless, makes sure you always try and go for 0% deals if you can get them, or to use your savings to pay for things or clear debts rather than take out new ones.
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If you have money given to you and its put you over the maximum threse hold
Both my house/contents insurance and dental plan have increased above the rate of inflation. With proposed increases in council tax, it may still be a few months before interest rates reduce.
Shawbrook bank have just notified me that the current variable rate on its instant access account of 4.99% will be reduced to 4.89% in March so it seems they are anticipating a base rate reduction then. Time to fix perhaps?
If you have a child, consider some of the children easy access savings accounts for a higher savings rate. These include Kent Reliance (3.01% up to £25k), Bath Building Society (2.5% up to £5k), Penrith (2.45% up to £10k), Leeds Building Society (2.25% up to £1m). I’ve placed cash in all of those, beats having it all stuck in Chase or Virgin Money!