The Bank of England has announced a cut in interest rates from 4.5% to 4.25%, marking the lowest rate since May 2023. The decision follows a divided vote by the Bank’s Monetary Policy Committee, with five members favouring the 0.25% reduction, two pushing for a more aggressive cut to 4%, and two preferring no change at all.
The move aims to stimulate spending by making borrowing cheaper for households and businesses. It’s expected to bring some relief to homeowners on tracker mortgages, who could see monthly savings of around £29, and possibly reduce the cost of loans, credit and new mortgage deals.
Governor Andrew Bailey said the decision was influenced by falling inflation figures in March, though he warned of a temporary rise ahead, largely due to energy price fluctuations. He also pointed to positive signals from the global trade front, welcoming the UK’s expected tariff-cutting deal with the US as a step toward economic stability.
Chancellor Rachel Reeves described the rate cut as “welcome news” and highlighted it as the fourth reduction since the new government took office. “This will make borrowing cheaper, ease the cost of personal loans and help more people onto the housing ladder,” she said. “But there is more to do.”
Despite the optimism, analysts caution that the rate cut may not significantly improve the finances of those on fixed mortgage deals until they come up for renewal. Meanwhile, savers may face lower returns as interest rates on savings accounts are likely to drop in the coming days.
The Bank has also revised its UK economic growth forecast for 2025, upgrading it to 1% from a previous estimate of 0.75%, citing stronger-than-expected performance in the first quarter. However, growth projections for 2026 have been downgraded amid ongoing uncertainty around global tariffs and trade.
With inflation cooling and growth stabilising, economists believe this could be the first of several rate cuts to come this year.
Industry reactions:
Nicholas Hyett, Investment Manager at Wealth Club said:
“With inflation falling, and unexpectedly strong economic growth in February, the Bank of England has a remarkable freedom of movement at the moment. That’s reflected in the MPC vote split this time round – ranging from 4.0% to 4.5%
Ultimately though the committee has, as expected, used its flexibility to clear the way for a soft landing after a period of moderate but stubbornly rising inflation at the end of last year.
The government and markets will welcome a little bit of extra padding. Changes to the national living wage and employer national insurance contributions only came into effect in April, and have the potential to spark an uncomfortable combination of rising prices and weaker labour markets. So far the economy has dealt with that looming speedbump surprisingly well, but some defensive driving from the Bank is no bad thing in an unpredictable market where key players have been known to suffer from the occasional bit of road rage.”
Mike Randall, CEO of Simply Asset Finance, says, “This month’s rate cut will ease some pressure for businesses under strain, especially following recent National Insurance changes, and provides hope for a more stable environment that can foster long-term growth and investment.
“However, the truth is that it will do little to aid the long-standing challenge of securing affordable finance. What is needed is for the government to switch from listening mode into the execution phase, with SMEs needing tangible solutions to be delivered. As the backbone of our economy, SMEs deserve a clear and consistent policy environment – one that gives them access to capital, regulatory certainty, and the long-term confidence they need to thrive.”
James Burgess, Head of Commercial and insolvency expert at Atradius UK, says:
“Today’s interest rate cut to 4.25% will come as a welcome relief to businesses and households across the UK. After months of subdued economic forecasts and ongoing geopolitical uncertainty, this move signals a cautious but positive shift in the economic outlook.
“With inflation easing to 2.6% last month, this rate cut should help restore confidence, encouraging spending and investment while supporting the government’s strategy for steady, sustainable growth.
“That said, businesses should stay focused on liquidity, reinforce supply chains, and protect cash flow through trade credit insurance to remain resilient and ready to seize new opportunities.”
Hamish Martin, Partner at LAVA Advisory Partners, said: “With the Bank of England finally trimming the base rate to 4.25%, we could well see a noticeable shift in M&A appetite, especially from private equity, who have been slightly more cautious of late with such comparatively high rates.
“Lower borrowing costs open the door for more leveraged deals, and we’re already seeing increased interest in lower-mid-market assets that might have been priced out just a few months ago.
“For founders and business owners considering an exit, this could mark the start of a more favourable window, especially as buyers start to move more decisively and have lower-cost capital at their disposal.”
