When the base rate changes, it has an impact on your borrowing and saving, as banks and lenders will update their interest rates to reflect the Bank of England decision
The Bank of England has cut its base rate from 4.5% to 4.25% – but what exactly does this mean for you? The base rate is the interest rate that the Bank of England charges other banks and lenders when they borrow money.
When the base rate changes, it has an impact on your borrowing and saving, as banks and lenders will update their interest rates to reflect the Bank of England decision.
Most economists had predicted the base rate would be cut to 4.25% although some had factored in a bigger drop to 4%. The Bank of England uses its base rate to keep inflation – which is a measure of price rises – under control.
Inflation fell to 2.6% in March, down from 2.8% in February, but this is still higher than the 2% target the Bank of England is aiming for. 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.”
But it also comes as some economists have warned that UK economic growth could slow sharply because of the “Liberation Day” tariffs announced by Donald Trump.
The Monetary Policy Committee – which is in charge of setting the base rate – stressed that it remains “sensitive to heightened unpredictability in the economic environment”.
The latest projections show gross domestic product (GDP) will average at 1% this year, up from the 0.75% that was predicted by the Bank of England back in February – but the forecast for 2026 has been downgraded to 1.25%, from 1.5% previously.
The announcement from the Bank of England comes ahead of a UK-US trade deal being confirmed today. Interest rates are now at their lowest level for two years, having steadily come down from their peak of 5.25%.
The base rate reached this level in August 2023 and remained this high until August 2024, when the Bank of England finally cut it to 5%.
The Bank of England has announced a further two cuts since then, to take the base rate to its current level of 4.5%. The most recent cut was announced during its February 2025 meeting. The base rate was held at 4.5% at the last meeting in March 2025.
I have a mortgage – how does it affect me?
It all depends on the type of mortgage you have. If you have a tracker mortgage, your monthly repayments will go down as this type of deal moves in line with the base rate.
The typical household with a tracker mortgage will see their monthly repayment reduced by around £29. If you have a standard variable rate (SVR) mortgage, then you will need to wait and see if your lender decides to pass on the cut by reducing your mortgage rate.
There are around 1.3 million households on a tracker or SVR mortgage. If you have a fixed rate mortgage, your payments won’t change today as you’ve already agreed to pay a fixed amount each month for a set period of time.
But many people are finding they are paying much more when they come to remortgage from a cheaper deal. If you don’t fix into a new deal, you’ll usually be moved to the SVR of your existing lender once your current mortgage deal ends.
An estimated 1.8 million fixed rate mortgages are set to expire in 2025.
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “For those with variable-rate mortgages or tracker deals, the move is likely to offer some immediate relief, as monthly repayments could dip slightly, easing pressure on stretched budgets.
“For would-be homebuyers, lower interest rates can be a double-edged sword. On one hand, it should make borrowing cheaper, potentially reducing monthly payments and improving mortgage affordability tests.
“On the other, it may fuel further competition in the housing market, potentially pushing property prices even higher, adding to the affordability challenge.“
I have a credit card and loan – how does it affect me?
If your credit card is linked to the base rate, then how much you pay back in interest can change when it is updated. The average credit card purchase APR is around 35%.
Interest rates on personal loans and car financing are normally fixed, so these should not change as you have already agreed set repayments.
If you are planning on taking out a new credit card or loan, you will likely find the rates on offer are still higher than they were previously.
Aaron Peake, Credit Card Expert at credit score service CredAbility, said: “A cut in the base rate doesn’t immediately mean lower credit card rates. Credit card interest is much less tied to the base rate than mortgages are.
“Lenders look at wider factors like default risk, consumer demand and overall economic uncertainty. That’s why even when the base rate was frozen earlier this year, card rates kept creeping up.
““We might see a tiny drop in new credit card offers towards the end of the year, especially if the base rate continues to fall and inflation stays low. But I wouldn’t expect average credit card interest to fall back to pre-2022 levels any time soon.
I have savings – how does it affect me?
We have seen saving rates come down, following the previous Bank of England cuts – but there are still plenty of deals out there that beat the rate of inflation.
Cash ISAs currently pay more than easy-access accounts and the best rate is 5.07% from Trading 212. You can pay up to £20,000 into an ISA each tax year and any interest you make is free from tax.
The top easy-access rate today is from Sidekick and Chip and these are both paying 4.76%. The best notice account is from OakNorth Bank and this pays 4.81% with a 95-day notice period.
If you can afford to lock their cash away, a one-year fixed rate of 4.55% is available from several lenders including Tandem Bank, Cynergy Bank and GB Bank.
Regular savings accounts offer the best rates, but you’re normally only allowed to make small deposits each month and some accounts restrict how many withdrawals you can make.
Principality Building Society pays 7.5% fixed for six months but you can only deposit up to £200 each month.
Sarah Pennells, consumer finance specialist at Royal London, said: “In the coming days and weeks, it’s likely we’ll see rates on easy-access and fixed-term savings accounts begin to fall, meaning savers may need to shop around more actively to get the best return.”