The Bank of England has trimmed the base rate by another 0.25%, bringing it down to 4% following today’s Monetary Policy Committee meeting. The decision, passed by a vote of 5-4, comes against a backdrop of weak growth, softening wage data and rising inflation pressures.
With views across the MPC looking more divided than ever, what does this mean for the pace of future cuts, and how should advisers be thinking about what comes next? We’ve rounded up expert insight and reaction from across the profession:
Richard Carter, head of fixed interest research at Quilter Cheviot comments:
“With today’s cut in interest rates, the fifth in a year, it appears the Bank of England is getting increasingly concerned about the health of the UK economy. Unemployment is rising, while growth has ground to a halt once again after what now appears to have been a false dawn in the first quarter. As such, the BoE, while still concerned about its level, is putting inflation fears on the back burner as it looks to provide some relief to businesses and consumers.
The market hopes the Monetary Policy Committee will pull the trigger again this year, but as the division on the last few decisions shows, even that might be put in doubt with any small change to the data. Today’s vote was on a knife-edge and required a second vote, with one member voting for a bigger rate cut, while four voted for no cut at all. This divergence in views makes interest rate decisions hard to forecast and highlights the difficult position the UK economy is in.
The problem facing the UK is that the issues show no signs of abating. Speculation is rife about which taxes will be next to be raised at the upcoming Budget and that is likely to weigh further on growth and consumer confidence, just as it did last year. It is looking like some tax rises in the past year have backfired, with employers making job cuts and wealthier individuals leaving the UK.
This should all point to a reduction in interest rates going forward too, just as we have seen in Europe. However, global trade policies still appear uncertain, and the UK is once again battling with inflation, when others in Europe are not. It is making the job for the BoE increasingly difficult as we continue to wait for some sort of economic corner to be turned.”
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said:
“An interest rate cut today was almost universally expected, except it seems at the Bank of England itself where the voting patterns reveals a very close decision, which required a second round of voting before a majority could be found. The tight decision reflects the conflicting forces facing policymakers, with inflation proving stronger than expected but activity growth remaining weak. It will be difficult for the Bank to give clear guidance about the likely path of rates from here given the messy data and divided MPC. But in the end, we expect the weakness of growth to win out, and for the Bank to cut rates again later this year, and then through next year as well.”
David Hunt, Head of Savings, Investec Bank, said: “Today’s cut introduces uncertainty for savers and we anticipate a higher number to move their money into our one, two and three year fixed rate products as they look to lock in attractive returns. Investec Save’s research reveals that savers are voting with their feet, with 37% planning to switch their funds into fixed rate savings accounts this year to beat rate cuts.
This is the fifth base rate cut since last summer and we predict there are still more cuts to come later this year and into 2026. Savers need to act quickly if they want to move their money to fixed rate accounts with higher rates as we’re likely to see these start to disappear from the market.”
Ed Monk, Associate Director, Fidelity International comments: “The doves at the Bank of England have won out – for now. Ahead of the decision today, the gilt market was predicting rates to fall below 3.5% within 12 months – suggesting three more quarter-point reductions over the next year following the cut today. However, the closeness of the 5-to-4 vote split on the MPC – with one member initially favouring a larger half-point cut – confirms the high degree of uncertainty around those expectations.
Inflation has surprised to the upside recently. The Bank’s own forecast from May suggested inflation would hit 3.7% by September before falling away. That has now been revised higher to 4%. CPI rose by 3.6% annually in July, meaning we’re approaching that predicted peak. The reading in August will be watched very closely.
The weakening jobs markets could alter the thinking among MPC members. Vacancies have been falling and employers are reporting their reluctance to replace workers who have left. That has the potential to reduce demand in the economy and pull inflation down further and faster. Pay growth is running at 5%, however, and several MPC members are clearly concerned this will feed through to higher inflation.
The cut in rates further diminishes the appeal of cash savings – especially with inflation remaining well above the Bank’s 2% target. Our own customer data show that cash and cash-like investments have soared in popularity over the past few years in line with the sharp rise in interest rates that followed the peak in inflation in 2022. Cash and money market funds were among the best-sellers for Fidelity Personal Investing customers in the first half of the year, although their popularity began to wane in July.
There is also evidence, however, that some are looking further afield for their income as rates on cash fall. Funds targeting regular dividends also returned to the best-sellers’ list last month.”
Sarah Pennells, Consumer Finance Specialist at Royal London, comments regarding today’s base rate decision:
“The Bank of England has cut the base rate to its lowest level since March 2023, which will be good news for borrowers who have a tracker or variable rate mortgage.
“A lower base rate can reduce borrowing costs for those on a variable or tracker rate mortgage, but it also means savers may see lower returns on their savings. Our latest Financial Resilience report shows that the average amount people have in savings is £15,864, rising to £24,122 for those over 60, and a 0.25% fall in savings rates could mean £5 less a month in interest for that population. This may not seem significant but almost one in five adults (18%), or 15% of over-60s, are overdrawn at the end of the month or have no money left, so it could have an impact on budgets.
Any reduction in mortgage payments will be welcome as more than half of mortgage borrowers have seen their monthly housing costs rise over the 12 months to March, by an average of £327. Single-adult households and renters are particularly vulnerable, with 71% of renters seeing their housing costs rise by an average of £233 a month in the same period.
Falling interest rates can discourage people from saving, but building up an emergency fund is crucial to improve financial resilience. Our research shows that one in five people have less than £100 in savings, which means they are exposed to future rises in costs or unexpected bills.
That’s why it is important to seek financial advice or guidance, and ensure you’re making informed decisions that protect your financial wellbeing, whatever the interest rate environment.”
Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group, said: “Today’s 0.25% rate cut continues the Bank of England’s measured approach to easing monetary policy, following a cut in May and a hold in June. While not unexpected, it reinforces the Bank’s cautious response to a challenging economic backdrop. Interest rates are now at their lowest level in two and a half years, reflecting growing concerns about economic momentum and a softening labour market. While inflation remains way above the 2% target, the Bank is clearly attempting to support growth without reigniting price pressures – a delicate balancing act.
For borrowers, particularly those on variable rate mortgages or nearing the end of fixed-term deals, this move offers some relief. However, with household budgets still under strain from high living costs, the impact may be gradual rather than immediate. The path ahead remains uncertain, and further rate cuts in 2025 are not guaranteed.
Savers face a more complex picture. Retail cash rates may begin to fall and with inflation still elevated, real returns on cash savings risk being eroded. Maintaining accessible cash for short-term needs remains sensible, but it’s increasingly important to consider long-term strategies. Investing through tax-efficient vehicles like ISAs and pensions can offer the potential for inflation-beating growth. While markets can fluctuate, a diversified, long-term approach can help people to build up financial resilience.”
Richard Flax, Chief Investment Officer at Moneyfarm comments: “The Bank of England’s decision to reduce interest rates by 0.25 percentage points, from 4.25% to 4.0%, comes against a backdrop of persistent economic headwinds. Rather than signalling renewed confidence, today’s move reflects the Bank’s concern over a stagnating economy, with GDP contracting for two consecutive months and inflation still running well above the 2% target at 3.6% in June. The split in the vote, with five members voting to cut and four voting to leave rates unchanged, highlights the challenges that policy makers face.
The UK labour market is showing signs of strain, with the unemployment rate rising by 0.3 percentage points over the past year to 4.7% the highest level since 2021. This uptick in joblessness highlights the challenges facing businesses, many of which remain cautious in the face of weak demand, higher costs and ongoing uncertainty around global trade policy.
For households, the increase in the cost of living remains a challenge. While a rate cut may offer some short-term relief for mortgage holders and businesses with variable-rate loans, it does little to address the deeper, structural issues in the economy.
The Bank’s decision underscores the delicate balancing act it faces: supporting growth without reigniting inflation, especially if supply-side shocks persist. Ultimately, today’s move highlights the need for a broader, coordinated policy response combining monetary and fiscal measures to address the root causes of economic instability and lay the groundwork for a more sustainable recovery.”
James Tothill, investment specialist at Wesleyan, said: “While it was generally expected that interest rates would fall this year, what’s becoming clear is that they’re staying higher, for longer, then markets previously forecast – mainly due to sticky inflation.
The challenge for savers is uncertainty. This is another opportunity for advisers and advice firms to highlight the value of maintaining a long-term view and having a plan that is prepared to keep savers on track for good outcomes, whatever happens.”
Paul Noble, CEO of Chetwood Bank, said: “Today’s rate cut will be welcomed, but it’s slow progress for an economy that’s in desperate need of a kickstart. Domestically and globally, the economy has taken a beating over the last year, but a trade deal secured with the US is one factor that has started to ignite some flickers of hope and likely prompted the MPC to continue to ease off on the brakes.
However, inflation remains above target, and many will argue that the MPC should have not only acted sooner but acted more decisively too. After all, leadership isn’t just about reacting when conditions are safe – it’s about shaping the path forward.
Caution has been the watchword on Threadneedle Street for a long time now, with rates slow to go up when inflation began to skyrocket and then slow to come down with inflation more settled. What was really needed today was bolder action to catalyse the economy and really create growth, rather than more tentative tiptoeing.
Nevertheless, today’s decision should be seen as a green light by investors. Rates are now far below their peak, and the lending markets should respond in turn. Pent-up demand can now be released, and we should expect activity levels to rise in the aftermath of today’s news.
For savers, this cut changes the landscape. The top of the rate cycle now looks to be behind us, and that means the best savings deals may not be around for much longer. Those who wait for their bank to catch up will miss the moment. It’s time to stay flexible, seek out stronger returns, and move ahead of the pack.”
Oliver Jones, Head of Allocation at Rathbones, says: “We expect the Bank of England to keep cutting interest rates once a quarter into next year. Despite the recent concerns about the quality of the data, it’s increasingly clear that the UK labour market is weakening with jobs vacancies generally below pre-pandemic levels and numbers of employees clearly falling.
For these reasons we expect the Bank to keep loosening rates, despite inflation well above 3%. The biggest risk to this would be any evidence that inflation will not fall back as fast as expected next year. Changes in government policy like higher national insurance and wage increases have kept services inflation in the 4.5-5.5% range for months but further increases, and food inflation running at 5% are also headaches for the MPC.”
Katie Stoves, Investment Manager at Mattioli Woods, said: “The Bank of England cut interest rates 25 basis points today, as was widely expected by the market, bringing the rate to 4.00% from the previous 4.25%. As had also been anticipated, the vote was split.
The rate cut signals that dovish members of the committee, who have been increasingly concerned about weakening employment data, ultimately prevailed over hawks who remain focused on inflation that continues to run above the Bank’s 2% target. This division within the committee underscores the challenging economic environment facing the UK, where growth concerns are mounting despite inflation remaining elevated.
Despite the rate reduction, the Bank maintained its commitment to a “gradual and careful” approach to future monetary policy adjustments, reflecting the delicate balance between supporting economic growth and maintaining price stability.
The rate cut could provide additional support to the UK housing market, which has been showing tentative signs of recovery following the conclusion of the stamp duty holiday in April. Lower borrowing costs typically encourage mortgage activity and property transactions, potentially helping to sustain the modest improvement in housing data recently released by Nationwide.
However, green shoots like this are to be weighed with less rosy data such as the poor construction numbers announced yesterday. Further, the impacts of new tariffs and potential tax rises in the autumn will be closely scrutinised.
Despite this unclear economic landscape, financial markets are anticipating further monetary easing, with traders currently pricing in an additional 50 basis points of cuts by April 2026.”
Adam Ruddle, Chief Investment Officer at LV=, said:
“The Bank of England’s decision to reduce rates to 4% seemed increasingly likely as falling employment rates signalled economic weakness.
Despite headline inflation persisting at 3.6% and services inflation projected to remain above 3% well into next year, this announcement aligns with the Bank’s strategy to gradually decrease the rate.
This reduction marks the third cut this year and will once again be welcome news to homeowners and prospective buyers, as lower interest rates may lead to lower mortgage rates. According to LV’s Wealth and Wellbeing research, more than a third (36%) of mortgage holders are worried about the future. This reduction may alleviate some of these concerns, especially for people looking to remortgage at a lower rate.
This further decrease in interest rates will be a helpful boost for the broader economy, helping to stimulate economic activity as the cost of financing falls and consumers and businesses have more capital to invest.
We expect the Bank will now pause before continuing to lower interest rates later this year.”
Adam Gillespie, Partner at XPS Group, commented:
“While today’s cut offers some relief for mortgage holders, we expect the impact on DB and DC pension schemes to be modest. This cut won’t move the needle much for most schemes as it is the movements in long-term UK yields – shaped in part by the Government’s challenging fiscal position – that will have the greatest impact on pension outcomes. Trustees and sponsors should remain focused on the bigger picture: robust long-term funding and risk management, and not simply the latest rate change.
Today’s cut is likely to have a negligible impact on UK DB schemes, with schemes remaining well-funded and largely insulated from short-term rate changes by hedging strategies. For DC savers, the picture is more nuanced. Lower base rates may reduce returns on cash holdings, but long-term pension growth continues to be driven primarily by investment performance rather than short-term rates. Outcomes for those purchasing annuities continue to depend heavily on long-term yields.”
