When Will UK Interest Rates Fall Again?

BoE holds at 4.25% but hints at August cut as inflation eases and economic pressure mounts

BoE Holds Rate at 4.25% – More Cuts Expected in 2025

The Bank of England (BoE) has kept its base interest rate at 4.25% following two earlier cuts this year. However, financial analysts believe further reductions could be on the horizon as inflation gradually slows and the UK economy shows signs of strain.

BoE Governor Andrew Bailey hinted at a possible cut as early as August, stating that interest rates are on a “gradual downward path,” though global uncertainty remains a concern.

Why Interest Rates Change

Interest rates determine the cost of borrowing and the return on savings. The BoE adjusts rates to help control inflation, which is targeted at 2%. When inflation rises, the Bank increases rates to curb spending; when inflation falls, rates may be reduced to encourage borrowing and boost growth.

As of May 2025, the UK’s Consumer Prices Index (CPI) inflation sits at 3.4%—well below the October 2022 peak of 11.1% but still above target.

Global Risks Weigh on Rate Outlook

The BoE’s decisions are shaped not only by domestic data but also by international developments. These include:

• Ongoing trade tensions due to US President Donald Trump’s global tariffs
• Rising energy prices caused by conflict between Israel and Iran

Such instability could push inflation back up, making the BoE cautious about cutting rates too quickly.

How Falling Rates Will Affect You

Mortgages

• About 600,000 mortgage holders have tracker loans directly linked to the base rate
• Fixed-rate mortgage customers will see higher costs when their deals expire
• As of 19 June, average rates were:
  • Two-year fixed: 5.11%
  • Five-year fixed: 5.10%
  • Two-year tracker: 4.91%
• Roughly 800,000 low-rate mortgages are due to expire annually until 2027

Credit Cards and Loans

Interest rates on credit cards, car loans, and personal loans are indirectly influenced by the BoE. While lenders may lower rates if the base rate drops, changes often take time to filter through.

Savings Accounts

A lower base rate typically means lower savings returns. The current average easy access savings rate is 2.67%, which may fall further if the BoE cuts again—impacting pensioners and others reliant on savings income.

What About Other Countries?

The UK has one of the highest interest rates among G7 economies. But other central banks have begun cutting:

• The European Central Bank lowered its rate to 2% in June 2025
• The US Federal Reserve held steady at 4.25%–4.5%, despite pressure from President Trump for more cuts

This trend suggests that global monetary easing is underway, which could influence the BoE’s timing for future reductions.

Summary: When Will Rates Go Down?

• BoE holds at 4.25%, but August cut is possible
• Inflation is falling, but global events pose a threat
• Mortgage, loan, and savings rates will adjust slowly
• UK policy will likely follow global central bank trends

For now, borrowers may find relief later in 2025, but savers should prepare for lower returns.

Sources: (BBC.co.uk)