On 8 May 2025, the Bank of England cut its base rate from 4.5% to 4.25%. It’s the second cut this year – and it’s got people asking what it really means for mortgages, savings, and the wider economy.

Let’s take a closer look.

Why did the Bank cut rates?

The move comes as inflation has cooled to 2.6% – closer to the Bank’s 2% target. At the same time, the UK economy is struggling to pick up speed. Throw in global trade worries (especially around new US tariffs), and the Bank is hoping a rate cut will give things a bit of a boost.

Interestingly, the vote by the Monetary Policy Committee (MPC) was tight: 5 in favour of the cut, four against. Some wanted a bigger drop, and others thought it was too soon. It shows there’s still concern about inflation and growth – and no clear path ahead.

How does a base rate cut affect you?

In theory, a lower base rate makes borrowing cheaper and saving less rewarding. But as with most things in finance, the real-life picture is a bit more mixed.

If you’ve got a mortgage:

• Most people are on fixed-rate deals – around 86% of us, according to the Bank of England. So nothing changes unless your deal is ending soon.
• If you’re remortgaging or house-hunting, lower base rates might mean better deals. But lenders also price mortgages using something called swap rates, which don’t always follow the base rate. So you might not see a big drop in monthly payments straight away.

If you’ve got savings:

• This is where it stings a bit. Savings rates are already starting to fall. Sites like Moneyfacts report fewer competitive deals, and with inflation still above 2%, cash sitting in the bank may be losing value in real terms.
• Now might be the time to shop around or consider fixing your rate before they fall further.

What’s the outlook for rates and inflation?

The Bank thinks inflation might rise again this year – up to 3.7% – mostly due to temporary blips. But over time, it’s expected to fall back. If that happens, the Bank is likely to keep cutting rates to try and support growth.

Some big players, like Barclays, think we could see the base rate drop to 3.5% by the end of the year. But forecasts are just that – forecasts. With the world still jittery from trade disputes and other economic shocks, no one can say for sure.

What should households do?

A rate cut sounds like good news for borrowers, and it is – but only if it trickles down into actual mortgage deals. If you’re on a tracker or variable rate, you might already see a small reduction in your monthly payments.

If you’re a saver, now’s a good time to act. Fixed-rate savings accounts may not be around at today’s rates for much longer, so it could be worth locking one in. Otherwise, it’s worth thinking more broadly – are there ways to make your money work harder through investing, for example?

And if you’re feeling unsure, it’s always worth speaking to a financial planner. They can help make sense of what’s going on and give advice that fits your personal situation – not just the headlines.

Takeaway: The latest Bank of England base rate cut offers a bit of breathing room for borrowers but puts pressure on savers. Whether you’re managing a mortgage, looking to invest, or protecting your savings from inflation, now’s a good time to review your finances and get expert support if you need it.