On 7 August 2025, the Bank of England (BoE) made headlines by cutting its base interest rate from 4.25% to 4%, marking the fifth such reduction since August 2024 and dropping borrowing costs to the lowest level since March 2023. This updated news is about Bank of England Cuts Interest Rate to 4% Amid Economic Uncertainty.
A Closely Contested Decision
For the first time, the Monetary Policy Committee (MPC) was so evenly split that it required a second vote to reach a resolution. The final tally saw five members in favor of the cut and four advocating to keep the rate unchanged. One member initially proposed a larger 0.5% reduction before agreeing to 0.25%. Governor Andrew Bailey called it a “finely balanced decision,” noting that while lowering rates remains the trajectory, the outlook has grown uncertain due to rising inflation risks, particularly from food prices.
Why the Cut: Balancing Risks in a Slowing Economy
The rate cut reflects mounting concerns over the UK’s economic trajectory:
- Inflation pressures linger, with forecasts warning of a potential 4% spike in September—far above the 2% target.
- Growth remains sluggish, with Q2 GDP increasing only slightly. Meanwhile, unemployment rose to 4.7%, the highest in four years.
- BoE projects inflation to return to target levels only by mid-2027, extending its timeline for easing price pressures.
- The MPC cautiously forecasts growth to 1.25% for 2025, up from earlier 1%, but warned of significant economic headwinds ahead.
What This Means for Borrowers and Savers
- Homeowners with tracker mortgages (about 590,000 households) may see monthly payments drop by around £30.
- Those on standard variable rates (SVRs) might eventually benefit, though reductions depend on lenders’ decisions savings are estimated to be around £13–£14 per month for average borrowers .
- Savers, especially those with flexible accounts, may experience lower returns. Average easy-access rates currently sit at approximately 2.67%, though top offers remain near 5%.
Forward Guidance: What Lies Ahead?
- The path to further cuts remains uncertain; economists from ING and Oxford Economics anticipate one more cut by November, with projections ranging between 1–3 cuts through 2025, potentially lowering rates to around 3.5% .
- The next MPC decision is scheduled for 18 September 2025, offering market watchers a mid-term check-in on economic policy direction
