Bank of England Cuts Interest Rate to 4%: What It Means for Your Mortgage and Savings

Our guide explains the immediate impact on your UK mortgage, savings, and what to expect next.

The Bank of England has today cut its base interest rate by 0.25 percentage points, taking it from 4.25% down to 4.0%. This is the second rate cut this year and marks a decisive step by the Bank to stimulate a sluggish economy, bringing borrowing costs to their lowest level in over a year.

The decision by the Monetary Policy Committee (MPC) was made on a 7-2 vote, indicating a strong consensus for action. For millions of people across the UK, this move will have a direct and immediate impact on their finances, particularly their mortgage payments and savings rates. At Plouta, we're here to break down what this means for you.


Why Did the Bank of England Cut Rates Now?

Today's decision was driven by clear signs that the UK economy is slowing and that inflation is continuing its downward trend towards the Bank's 2% target.

  • Falling Inflation: The latest figures from the Office for National Statistics (ONS) showed that the headline rate of CPI inflation fell to 3.1% in the 12 months to July. More importantly for the Bank, underlying services inflation also showed signs of cooling.

  • Weakening Economic Growth: Recent GDP figures have indicated that the UK economy has stalled, with little to no growth in the second quarter of 2025. The Bank is acting now to prevent a potential slide into recession.

  • Loosening Labour Market: Wage growth, a key concern for the MPC, has continued to moderate, and unemployment has ticked up slightly, reducing fears of an inflationary wage-price spiral.

In essence, the Bank now feels confident that inflation is under control and that the greater risk is a stagnant economy. Today's rate cut is designed to make borrowing cheaper, encouraging spending and investment.

What This Means for Your Mortgage

This is positive news for most mortgage holders and those looking to buy.

  • Tracker Mortgages: If you have a tracker mortgage, you will see an immediate benefit. Your interest rate is directly linked to the base rate, so your monthly payments will drop within the next month or two. On a typical £200,000 tracker mortgage, a 0.25% cut could save you around £30 per month.

  • Standard Variable Rate (SVR) Mortgages: Those on their lender's SVR will almost certainly see their payments decrease. Most lenders are expected to pass on the 0.25% cut, though they are not required to do so. This will also provide a small saving each month.

  • Fixed-Rate Mortgages: If you are in the middle of a fixed-rate deal, your payments will not change. However, this is excellent news if your fix is due to end in the next 6-12 months.

    • New fixed-rate deals are priced on future expectations for interest rates. This cut signals the Bank's clear intention to continue easing, which will put further downward pressure on the "swap rates" that underpin mortgage pricing. We can now expect to see lenders competing to launch new fixed-rate deals below 4%.

What This Means for Your Savings

For savers, the news is less positive. This rate cut will almost certainly lead to further reductions in the interest rates paid on savings accounts.

  • Variable-Rate Accounts: Expect rates on easy-access and notice accounts to be trimmed by most providers over the coming weeks.

  • Fixed-Rate Bonds & ISAs: The best fixed-rate deals on the market will likely be pulled and replaced with lower rates very quickly. If you have cash you intend to put away, acting now to lock in a top fixed rate is a smart move before they disappear.


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Plouta's View: The Direction is Clear

Today’s rate cut confirms the Bank of England's pivot from fighting inflation to stimulating growth. While the cuts are gradual, the direction of travel is clear: borrowing costs are set to fall further.

This provides a welcome relief for millions of mortgage holders and creates an excellent opportunity for those looking to remortgage or buy a home in the near future. For savers, it reinforces the message that the peak of savings rates is firmly behind us, and securing the best remaining deals should be a priority.

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Disclaimer: This article provides general information about the Bank of England's interest rate decision as of 7 August 2025 and is for informational purposes only. It does not constitute financial advice. Mortgage and savings rates can change rapidly. Always seek independent financial advice from a qualified professional before making any financial decisions.

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