The Bank of England has announced a second interest rate cut this year, lowering the base rate from 5% to 4.75%. This 0.25 percentage point reduction comes as inflation has dropped below the Bank’s 2% target, reaching 1.7% in September. However, the Bank has cautioned that further rate cuts will be gradual, especially in light of inflationary pressures from the recent UK Budget.
Speaking to BBC News, Bank of England Governor Andrew Bailey explained, “We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much.” The Monetary Policy Committee (MPC) voted 8-1 in favour of the cut, reflecting confidence in the economy’s progress while acknowledging that inflation could rise slightly in the coming year.
The cut is expected to provide relief for homeowners with variable or tracker mortgages, who could see lower monthly payments. However, savers may experience reduced returns on their savings accounts as banks adjust to the new rate.
The Bank’s decision follows a period of significant economic change, with inflation falling from a peak of over 11% last year. Despite this progress, the recent Budget is expected to push inflation higher in the short term, delaying further rate cuts. The Office for Budget Responsibility (OBR) has forecast that measures introduced in the Budget could increase inflation by up to half a percentage point over the next two years.
For borrowers and businesses, this latest rate cut could stimulate spending and investment, but savers may need to explore alternative options to maximise returns in a low-interest environment.
This latest move by the Bank of England is part of a broader trend among central banks globally, with other European institutions such as the ECB and Sweden’s Riksbank also reducing rates in response to easing inflationary pressures.
Key Takeaways:
- The Bank of England has reduced interest rates to 4.75%, its second cut this year.
- Inflation is expected to rise slightly due to recent Budget measures.
- Further rate cuts will be gradual as the Bank monitors economic conditions.
- Borrowers may benefit from lower mortgage payments, while savers could see reduced returns.
Industry Comments on the Rates Cut
Commenting on the Bank of England cutting rates as UK investments get boost following controversial Budget, Douglas Grant, Group CEO of Manx Financial Group, said: “The Bank of England’s decision to lower interest rates to their lowest level since last June aligns with positive news that UK inflation has fallen below the 2% target for the first time in over three years. This policy shift, alongside controversial Autumn Budget fiscal plans, provides a potential boost for UK investments after a period of economic stagnation. However, high input costs and possible inflationary pressures from the Chancellor’s measures mean that businesses must adapt their lending strategies to stay resilient in a still uncertain market.
“Recent research from Manx Financial Group shows that nearly a third of UK SMEs have paused or reduced operations due to financial constraints—an improvement from 40% in 2023 but still significant, with around 10% of SMEs struggling to access external finance. Given SMEs’ role in driving growth, employment, and innovation, the Labour Government must foster a supportive lending environment for their resilience and expansion. Both traditional and alternative lenders are key to this, as inadequate financing could hinder recovery amid rising taxes, geopolitical tensions, and cost-of-living pressures.
“This period of monetary easing offers SMEs a crucial opportunity to secure affordable credit and build resilience as the fiscal and economic landscape evolves.”
James Burgess, Head of Commercial and insolvency expert at Atradius UK, says:
“Today, businesses and consumers across the UK can breathe a sigh of relief as interest rates finally drop to a much anticipated 4.75%, following last week’s Autumn Budget.
“For businesses, this cut brings a surge of confidence heading into the festive season, a prime time for sales and growth. With more disposable income, consumers, too, are likely to spend more freely, driving up demand and lifting business optimism—a promising setup for investment as we move into the New Year.
“Although our data shows a 10% rise in late and failed payments from Q2 to Q3, there’s still time to turn things around and finish the year strong. Businesses across the UK are eager to start 2025 on a high note.
“While extreme tax hikes from the Budget may weigh on the progress made, this rate cut is a step in the right direction for the UK economy. It’s a positive sign for businesses and consumers alike, though global uncertainties keep financial planning a priority. To guard against insolvency and ensure resilience, businesses should focus on boosting liquidity, diversifying supply chains, and securing trade credit insurance.”
Mike Randall, CEO at Simply Asset Finance, says: “After the uncertainty surrounding the Budget, this will hopefully give businesses a clearer path for growth, allowing them to tap into pent-up demand and make strategic investments that had previously been put on ice. And for those businesses that will be looking to mitigate the newfound pressures from the National Insurance rise, it will offer some much needed reassurance.
“But in order to achieve and exceed the Chancellor’s ambitious growth targets set out in her Autumn Statement, the SME community needs more; more certainty to make big decisions; more support to innovate and expand: more incentives to invest in the long-term future of their business and their employees. Only then we can be confident that the Government’s goal of rebuilding Britain can be achieved.”
Greig Brown, Mortgage Director at Aberdein Considine:
The Bank of England have announced today that the base rate will be cut from 5.00% to 4.75% This is the lowest it has been since June last year.
This is the second rate cut this year, following the decision to reduce the rate from 5.25% to 5.00% in August this year.
Although today’s reduction on the interest rate was widely expected, there was some concern that the Bank would keep rates higher for longer after the Chancellor delivered her first Budget at the end of October.
This news will be welcomed by mortgage holders, with the 600,000 people in the UK currently on a ‘tracker’ mortgage set to benefit from reduced payments. Those on variable rates will need to wait and see how their lender reacts to this news, with some lenders already pricing this in, it could see little movement but this will be lender-dependent. For those on fixed rates, their payments will remain ‘fixed’ and unchanged until their fixed rate ends.
In terms of overall mortgage rates – what will this mean?
The likely answer is – probably not much! Today’s cut was widely expected, and a lot of lenders have priced their rates in anticipation of this. A number of lenders have been increasing rates over the last few weeks in anticipation and reaction to the Budget, US Election result, and other macroeconomic factors. The decision to reduce the BoE base rate today will give hope to homebuyers across the UK that we will start to see more rate reductions or at the very least, a period of stability in the rates being offered by lenders.
All things considered, this is positive news for existing and prospective homeowners. The outlook for the next 12 months is still optimistic, albeit slightly tempered by the recent Budget, and expectation is that rates will continue to reduce, slowly, over the next 6 to 12 months.
One key point to finish with though, is that it is unlikely to be a smooth road. We will see fluctuations and rates may rise as well as fall over the coming months. So for those who already hold a mortgage, the advice would be to act early, speak to a mortgage broker or your lender 6 months before your current mortgage deal expires. You will be able to secure the best rate available at that time, and still be able to change to a new one if rates fall further before your current deal expires. For those looking to buy their first home or move to their next one, don’t let ‘potential’ rate reductions hold you back. Although rates may come down further, expectation is that house prices will continue to rise, as will competition for properties. So any saving on your mortgage could be outweighed by having to pay more for your dream home.
Richard Carter, CEO of Lenvi: “Borrowers will feel even more reassured by interest rates dropping further to 4.75%, following the Autumn Statement last week. The announcement of stabilising inflation rates and peoplebreathing a sigh of relief after no increases to Capital Gains Tax for residential properties should help to stimulate growth in the housing market. While we need to be cautiously optimistic, these measures in principle should stabilise mortgage rates, which will start to restore home buyer confidence and make it easier for first-time buyers to achieve home ownership.
“Our latest research on consumer habits found that four in ten (39%) borrowers listed ‘low interest rates’ as their biggest priority when choosing a lender. With this in mind, many of our customers will likely be anticipating increased mortgage activity, and will need to prepare to scale, ensuring they have the correct processes and quality systems in place.”
