Over the last few years, you will have seen much discussion in the press about the Bank of England’s interest rates – you may even remember us discussing what the series of increases meant for you. Having peaked at 5.15% in summer 2023, the base rate has been slowly falling again for the past nine months, with more cuts forecast to come. 

The latest cut, on 8 May 2025, has brought the figure down to 4.25%. So, what does this mean for you now that interest rates are falling once again?

 

What is the base rate and why does it change?

The Bank of England’s base interest rate dictates the rates set by high street banks and lenders. The higher level in recent years has meant people are paying more to borrow money for things like mortgages and credit cards, but equally savers have also received better returns.

The base rate is reviewed 8 times per year and is used as a means to influence the UK economy and control inflation preventing it getting too high or too low.

Prior to its first substantial increase in early 2022, the base rate had remained below 1% since 2009. The Bank of England’s decision to cut rates typically signals confidence that inflation is coming under control and that the economy may need a gentle boost.

 

What it means for you

There are several ways that the base rate cuts may affect you.

Borrowing, particularly mortgage holders

If you have a variable or tracker mortgage, you should start to see your monthly repayments decrease, which we’re sure will be a welcome relief. 

For those with fixed-rate mortgages nearing their term end, this is also good news, as rates for new fixed deals are becoming more competitive – on the day the latest decrease was announced, the average two-year fixed mortgage rate was 5.14%, while a five-year deal was 5.08%, according to financial information service Moneyfacts.

Now is a crucial time to review your options and potentially secure a more favourable rate. Other loans and credit agreements may also see a gradual easing in costs.

 

Savings 

The flip side of cheaper borrowing is that interest rates on cash savings accounts – especially easy-access options – are likely to continue falling. 

If you’re considering locking in a fixed-term savings rate, the window to secure the best current rates may be narrowing. It’s a good moment to reassess your cash and ISA holdings and ensure they’re working as hard as possible for you – talk to your financial planner if this is something you’re concerned about.

 

Investing & pensions

Lower interest rates can generally provide a boost to equities (stocks), as borrowing becomes cheaper for companies, potentially stimulating growth and profits. They also make the return from cash less attractive, encouraging a shift towards growth assets like equities.

For bonds and other fixed income, existing ones can become more valuable when rates fall, as their fixed interest payments become more appealing. 

If you’re nearing retirement and considering an annuity, falling rates can sometimes lead to lower guaranteed income rates, making timing and strategy even more critical. 

 

What next?

In general, these changes are positive and suggest a more stable economic environment is within reach. It’s likely that your strategy will remain unchanged by the falling interest rates, and you may even benefit from it.

However, if you would like to speak to your financial planner about anything we’ve discussed in this article to set your mind at ease, please don’t hesitate to get in touch. We’re happy to help.