Bank of England cuts interest rates: Here’s what it means for your money

The Bank of England took a significant step on Thursday by reducing interest rates, a move expected to offer some relief to borrowers, businesses, and consumers across the country. The central bank lowered its key interest rate from 4.5% to 4.25% during its latest monetary policy meeting, driven by sluggish economic growth and ongoing concerns about President Donald Trump’s trade tariffs.

This rate cut had been widely anticipated, especially following a slowdown in inflation, which fell to 2.6% in March, down from 2.8% the previous month. Of the nine policymakers at the Bank of England, five voted in favor of the rate cut, two wanted a larger reduction of 50 basis points, and two preferred to maintain the current rate.

In its statement, the Bank of England acknowledged the increased uncertainty surrounding global trade, particularly due to U.S. tariffs and retaliatory measures. It noted that while these global tensions had weakened growth prospects, the impacts on the UK’s economy and inflation were expected to be relatively small.

Winners and Losers from the Rate Cut

Homeowners
The rate cut will be welcomed by homeowners, especially those looking to buy a new home or re-mortgage, as it will make borrowing slightly more affordable. Approximately 85% of existing mortgages in the UK are fixed-rate, and many of these will be affected by the rate change. Around 1.6 million fixed-rate deals are set to expire by 2025, making this cut especially beneficial for those seeking new offers.

However, homeowners with fixed-rate mortgages will not immediately benefit from this change. On the other hand, the 591,000 homeowners on “tracker” mortgages, which adjust with the Bank of England’s base rate, will see their monthly payments drop by £29 on average. This offers immediate relief to those on these types of mortgages.

Consumers and Businesses
For consumers, the rate cut could mean lower interest rates on credit cards, personal loans, and other forms of borrowing, depending on individual circumstances. Businesses, particularly small and medium-sized enterprises, will also benefit from cheaper borrowing costs, freeing up cash for investment and growth. Lower interest rates are expected to encourage consumer spending, which will be crucial for firms that have recently been burdened with rising costs, including higher wages and national insurance contributions.

However, a potential global economic slowdown due to U.S. trade tariffs and the rising cost of energy could dampen consumer confidence. Despite the recent slowdown in inflation, experts warn that any potential increase in energy prices could reverse some of the benefits brought by the rate cut. In particular, the U.K. economy remains under pressure from ongoing uncertainties, particularly those linked to global trade.

While the Bank of England’s rate cut may offer a short-term boost, the road ahead remains uncertain. As Kallum Pickering, chief economist at Peel Hunt, explained, the outlook for the economy and inflation could change significantly depending on the evolving global economic landscape.