The Bank’s Monetary Policy Committee (MPC) voted 5-4 in favour of reducing the bank rate by 0.25 percentage points, after last cutting it in February.
Economists had widely expected the Bank to drop rates, and further cuts this year are predicted.
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The Bank of England aims to keep inflation at around its 2 per cent target.
But Donald Trump’s tariff policies have convinced economists that the economy will perform less well than previously expected, and high rates can weigh down further on economic performance.
Later this year, inflation is expected to rise from its current level of 2.6 per cent.
The Bank of England said on Thursday: “Previous increases in energy prices are still likely to drive up CPI inflation from April onwards, to 3.5 per cent for the third quarter of 2025.”
Will interest rates be cut again this year?
There are a variety of predictions for what will happen to interest rates, though most forecasters expect more cuts in 2025.
Pantheon Macroeconomics predicts two, in June and November.
It said the decision was “reflecting continued progress in disinflation though with risks to inflation remaining in both directions.”
However, around four in five mortgage holders are on fixed-rate mortgages, where the interest rate is locked for a set period of time, so if you are on this type of loan, your repayments will not change.
A drop in the bank rate does not always result in an immediate reduction in mortgage rates across the board. When setting their rates, lenders take multiple elements into account, including their service levels and overall market conditions.
Nick Mendes of John Charcol brokers said: “The market was already pricing in a 0.25 per cent reduction in this week’s Bank of England rate decision. So it’s not a case of waiting to see what happens—pricing was moving as if the cut was already done.”
How will the interest rate cut affect renters?
Rents are set by a variety of factors, including supply and demand, and so the rate cut is likely to have a minimal effect.
What will happen to savings rates?
If you have a easy-access savings account, the rate could fall at any point, but if you have a fixed-rate account, the interest rate is set for the period of time the account is fixed for, so it will be unaffected by the news from the Bank of England.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said much of the change on Thursday is already priced in, but savings rates will likely continue their downward trend in the months to come.
“However, some banks will be in more of a hurry to cut rates than others, so you could more than double the rate from a pedestrian high street giant by shopping around among online banks and savings platforms.”
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