Interest rates cut to 4.25%: how it’ll potentially impact your finances 

The Bank of England (BoE) has cut interest rates from 4.5% to 4.25% today, Thursday 8 May.  

Five members of the BoE's Monetary Policy Committee (MPC) voted for a 0.25 percentage point cut to bring it to 4.25%. Two members voted to reduce it by 0.5% to 4%, while two voted to keep it unchanged at 4.5%. 

The decision shouldn’t come as a surprise, as the markets had already widely expected a base rate reduction and had begun adjusting their financial positions after MPC member Megan Greene said US trade tariffs were likely to push inflation down. 

Greene also said the UK could become popular for cheaper goods from Asia and Europe.  

The International Monetary Fund (IMF) forecasts that UK inflation will be the highest in the world’s advanced economies in 2025 at 3.1% due to higher utility bills, up from 2.6% in March.  

The IMF also believes that interest rates could be cut three times this year, which includes today’s reduction.  

How will mortgage rates be affected?  

For variable-rate mortgage holders, a lower base rate tends to lead to their rate falling, so your monthly repayments may be lower.  

The average five-year fixed-rate mortgage rate is currently 4.60%, according to Rightmove.  

Fixed mortgage rates have been fluctuating over the last year, but lenders have been reducing rates below 4% due to expectations of more frequent interest rate cuts in 2025. However, mortgage rates may continue to fluctuate. 

If you’re hoping to get on the property ladder, it’s worth stressing prices are likely to rise this year. If you’re considering applying for a mortgage, there are multiple boxes you need to tick, including making sure you can afford it, having a good credit score, and clearing outstanding debt.  

A  mortgage broker can boost your chances of a successful mortgage application.  

How will savings rates be affected?  

Savings rates have remained resilient throughout the last year, only dipping after a few base rate reductions.  

However, any cut in the base rate can prompt savings providers to reduce their rates, which is why it’s worth opening an account, particularly if you’re interested in a fixed-rate one, as rates are around 4.5%.  

You may want to consider investing if you’re seeking even higher rates, have long-term financial goals, and don’t need easy access to your cash, but this comes with extra risk.  

While your investments can rise and fall in value, you may be able to ride out any possible volatility by investing for at least a few years.  

You can quickly match with a financial adviser via Unbiased, who can help you with an investment strategy or review your existing portfolio and advise on how to reduce your tax bill legally.  

What about annuities?  

Annuities offer a fixed income for your retirement or a fixed period to provide peace of mind.  

Annuity rates have increased throughout 2024 and the first few months of 2025. Changes in the base rate also may affect annuity rates, so the BoE’s decision could cause providers to reduce them. 

While annuity rates have held up, this cannot be guaranteed following the latest reduction, so it’s worth considering an annuity now.  

Unbiased can match you with a qualified financial adviser who can help you find the best annuity for your circumstances.