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The Bank of England has confirmed a 25 basis points cut to the Bank Rate down to 4.25 per cent, a second such drop this year in an ongoing boost to businesses and mortgage payers alike.
Following cuts in February and now May, the base rate is down from a high of 5.25 per cent to a level last seen two years ago in May 2023.
While the Monetary Policy Committee (MPC) had been widely expected to bring interest rate down this time, there is a wider possibility for back-to-back rate cuts - while some analysts predict a further three cuts to happen this year, bringing the interest rate down below four per cent for the first time since January 2023.
That will still be partly dependent on factors such as inflation, any lingering impact from the Trump tariffs and also domestic business and employment data following April’s rise in labour costs - as well as increased household bills.
Andrew Bailey, governor of the Bank of England, said: "Inflationary pressures have continued to ease so we've been able to cut rates again today."
The Bank also predicted that the UK economy will grow by 1 per cent this year, upgrading its previous 0.75 per cent forecast on the back of a strong start to 2025.
However, it added that recently announced US tariff plans and their impact on global trade will dent UK growth by 0.3 percentage points over the next three years, as it downgraded its 2026 forecast.
Most of this downward impact is to come from "lower US demand for UK exports" and weaker global activity, according to the Bank's latest report.
Nathan Emerson, chief executive of Propertymark, said: "Today's news will no doubt be extremely welcome for many, especially given current economic uncertainties. International bodies have recently stated they expect interest rates to fall in the UK as the year progresses. Overall, we hope to see interest rates further continue their downward trajectory over the course of 2025.
"The UK housing market has recently been buoyed by Stamp Duty threshold changes leading up to the start of April, and with the busier spring and summer months now here, this base rate reduction should attract even more buyers and sellers to the market and provide greater affordability.
"Housing is a central part of the UK economy, and we now hope to see considering the UK Government and the devolved administrations have shown a keen focus on housing growth, is that they look ahead to achieving their individual housebuilding targets to meet growing demand."
Business investment
Businesses habitually look to invest more money in projects or personnel when interest rates are lower, as the cost of taking on debt is in turn lower.
Theo Chatha, CFO of Bibby Financial Services, pointed out that more than six in ten smaller businesses (62 per cent) have said they’d “feel more confident investing” with lower rates - but cautioned against potential future interest rate rises if the UK faces inflationary pressures as a result of Trump tariffs.
“The Bank may need to raise rates again later in the year to curb inflation due to tariffs friction,” he said. “This threatens to dampen SMEs’ ambition – meaning investment plans are delayed further, but SMEs can’t afford a ‘wait and see’ approach to decision making. Against economic uncertainty, businesses that continue to invest and plan for every scenario will stay ahead of the competition.”
Mortgages and bills
While this interest rate cut was already largely priced into mortgage markets, the possibility of future interest rate cuts should still see more competitive product rates emerging in the months ahead.
Plenty of lenders are already fighting a sub-four per cent battle, a relief to any of those homeowners set to come to the end of a fixed term across the coming months.
On the other hand, while loans will also become cheaper to pay off if not linked to fixed interest rates, any cash held in variable rate savings accounts could soon be earning less.
English (US) ·