The Bank of England has reduced the base rate for the second time this year
We’ve taken a look at the thinking behind this latest decision, and whether we’re likely to see more cuts in 2025.
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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 8 May 2025, dropping to 4.25%, after being cut to 4.5% in February this year. This is the lowest rate since March 2023. It was widely expected to happen this way over the last few weeks.
Five members of the Monetary Policy Committee (MPC) voted to cut the base rate to 4.25% while the rest of the voting was split. Two wanted a larger cut to 4% and two wanted it to remain at 4.5%.
source: tradingeconomics.com
| Date of announcement | Rate | Change |
| May 2025 | 4.25% | -0.25 percentage points |
| March 2025 | 4.5% | No 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 |
| September 2023 to June 2024 | 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 |
Will interest rates continue to fall in 2025?
There are some predictions right now are that we’ll see three or four more cuts in 2025, bringing it down to 3.5% or 3.25% by year end. Considering there are only five more meetings left this year, that would be almost cut after cut.
This is much more than was suggested six weeks ago, and more than even the most severe forecasts at the start of the year.
The Bank’s own latest forecasts, based on market rates, are more conservative. They have the base rate at 3.5% in a year, 3.6% in two years and 3.7% in three years. That chimes with their comment that any changes will be “gradual and careful”.
So already we’re seeing different suggestions, and as is always the case with base rate predictions, this can change quickly.
And that’s likely. There’s still huge uncertainty in the economy at home and around the world. Donald Trump’s trade tariffs will impact us, as will the ongoing wars in Ukraine and Gaza.
Of course, though it’s not the only reason to change the base rate, inflation is the key one (more on this below). The latest inflation rate in the UK is 2.6%, and expected to temporarily increase further to 3.5% in the autumn (down from a 3.7% prediction in February).
Though the Bank says they expect inflation to then drop back down during 2026, it still means we’re well above the 2% the Bank wants us to be at. So they won’t necessarily want to reduce the base rate just too fast if they don’t see inflation following that path.
So, as ever, everything can change and none of this is guaranteed! But another cut could be coming at the next meeting in June.
When is the next interest rate decision?
The rate is set every six weeks or so by the Bank of England Monetary Policy Committee, a group of nine people, with the majority vote deciding whether the rate goes up, down or stays the same.
The next meetings will be on:
- 19 June 2025
- 7 August 2025
- 18 September 2025
- 6 November 2025
- 18 December 2025
The base rate and inflation
The driver for changing the base rate 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.
How the base rate impacts your money
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 the decision impacts your savings
Since a peak in autumn 2023, rates have generally been falling as banks price in both actual and predicted cuts (they’re fast to pass these on, but slow to give us the increases).
This cut, and the spectre of further ones this year, is bad news all round for savings. Most easy access accounts will fall in the coming days and weeks, if they haven’t premepted it already. Those accounts which track the rate, such as Chase and Chip, will drop immediately by the full 0.25 percentage points.
It’s very likely the handful of remaining easy access accounts offering above 5% will now disappear. Though most of the ones that have been above this have been Cash ISAs driven by marketing spend to attract customers, they will probably fall too.
Fixes have already been dropping, factoring in this cut before it happened, though that doesn’t mean they won’t fall further. If you can fix, i.e. you won’t need to access your money for a set time, and want certainty, you’ll want to grab one of these fixed accounts ASAP. It won’t be long before those predicted additional cuts are factored in.
The highest-paying savings accounts – our picks
- 6% AER current account from Santander (limited to £4,000 deposit and has monthly fee)
- 7% AER regular saver from First Direct
- 5.07% 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 decision impacts your mortgage
Those with existing tracker deals will see their rates come down by the same 0.25 percentage points almost immediately. On average that’ll be worth £29 a month.
If you’re on your lender’s variable rate (SVR) you should also see some changes, though it’s not guaranteed. But if you’re already on a fixed-rate mortgage (which most people are) nothing will change.
It’s less clear in the short term for anyone looking to remortgage or get their first one. That’s because while mortgages rates are directly based on the base rate, they’re actually influenced by something known as swap rates – effectively where they think the rate will be in the future.
So many fixes will have already priced in this cut to the base rate on previous predictions, and we’ve actually seen the lowest two and five year fixes drop to around the 3.85% in recent weeks.
That’s good news, but the question is whether they’ll fall further in coming months. The markets have signalled we could see yet more cuts this year, so lenders will be working out whether to factor those in too.
However, but don’t expect them to fall where they were just a few years ago.
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. It could be we see longer 0% deals on credit cards.
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!