What the Bank of England's Second Base Rate Cut to 4.25% Means - And What's Next

Why the Rate Was Cut Again

After a long period of rising interest rates to combat inflation, the tide appears to be turning. The inflation rate has continued to fall, reaching just under the Bank's 2% target. At the same time, signs of economic stagnation and sluggish consumer spending have raised concerns that high interest rates are now doing more harm than good.

This latest 0.25% cut to 4.25% reflects the Bank's belief that inflationary pressures are easing, giving it more flexibility to support economic growth. It also signals to businesses and consumers that borrowing costs may gradually ease throughout 2025.

What This Means for Mortgage Holders

For homeowners with tracker mortgages or standard variable rate (SVR) mortgages, the cut could bring welcome relief. A reduction of 0.25% may save the average tracker mortgage holder around £15 to £25 a month, depending on their loan size.

Those on fixed-rate mortgages won't see any immediate benefit, but the rate cut could mean better deals coming to market over the coming months. If further cuts follow, lenders may begin offering lower fixed-rate deals, allowing borrowers to refinance at more affordable levels later in the year.

And What About Savers?

Interest rate cuts are rarely good news for savers. While some banks and building societies will hold off on immediate changes, most will likely reduce savings rates in line with the base rate.

However, savings providers face increasing competition, so some may delay cuts or continue offering attractive deals, especially on fixed-term or online accounts. It's still worth shopping around if you want to lock in a better return before rates fall further.

What It Means for Inflation and the Economy

The Bank of England's goal is to strike a balance - bringing inflation down without tipping the UK into recession. With inflation nearing its target and economic growth near zero, the rate cut aims to stimulate demand while maintaining price stability.

If rate cuts are timed right, they could support growth in sectors like construction, housing, retail, and manufacturing - areas which have all seen a slowdown in recent months due to higher borrowing costs.

Will There Be More Rate Cuts?

Most economists now expect the Bank to make at least one or two further cuts before the end of 2025, possibly bringing the base rate to around 3.75% or 3.5% depending on economic data. Markets are already pricing further reductions, though the timing will depend on how inflation continues to behave over summer and autumn.

Governor Andrew Bailey has said the Bank will take a 'data-driven' approach. If wage growth stays moderate and inflation remains low, we may see a gradual return to pre-2022 levels - but we'll unlikely see ultra-low rates again anytime soon.

What Should You Do Now?

• If you have a mortgage: Check when your deal ends and speak to a broker about options. Falling rates may mean better deals later this year.
• If you're saving: Consider locking in current rates on fixed accounts if you want certainty before savings rates fall further.
• If you're a business: Review your borrowing needs and cash flow strategy. Lower rates may soon make refinancing or expansion more viable.

The base rate cut to 4.25% indicates that the Bank of England believes inflation is under control and that the focus is shifting toward economic recovery. While this brings mixed news for borrowers and savers, it could mark the beginning of a gentler monetary policy phase in the UK.

All eyes now turn to future economic data. If inflation continues to fall and growth remains weak, more cuts are likely, helping to ease financial pressure on households and businesses across the country.