8 May 2025
If you are covering the Bank of England's interest rate decision and the impact it will have on personal finances, please see the following comment from Rosie Hooper, chartered financial planner at Quilter Cheviot:
"The Bank of England has announced its second interest rate cut of 2025, reducing the base rate from 4.5% to 4.25%. While this signals good news for many borrowers, particularly those with variable rate mortgages or personal debt, it's a more mixed picture for others. Savers may face lower returns, and retirees considering annuities might see less favourable rates. The Bank’s decision comes in response to a persistently sluggish economy and while it may offer some financial breathing space, it also reflects underlying uncertainty in both domestic and global markets. Whether this is good or bad news will depend on your individual circumstances but it’s a timely moment to reassess how your finances are positioned for what comes next.
Mortgages
"With this latest rate reduction, homeowners on variable or tracker mortgages can expect a decrease in their monthly payments. Fixed-rate mortgage rates have been gradually declining, and this cut may further enhance competition among lenders. Borrowers nearing the end of their fixed terms should explore the market for potentially more favourable deals and ensure they have the necessary paperwork and mortgage application details ready, so they can act quickly if attractive new deals come to market.
Savings
"Savers may face diminishing returns as banks and building societies adjust their rates in response to the base rate cut. These institutions are typically slow to increase rates on savings accounts when rates go up but fast to drop them. While some accounts still offer competitive rates, these may not last. It's sensible for savers to review their accounts and consider locking in higher rates through fixed-term products or exploring investment options aligned with their risk tolerance. For those with excess cash, it may be worth considering the stock market, which has historically offered better inflation-beating returns over the long term. However, this comes with greater risk and is best suited to those with an appropriate time horizon and appetite for volatility.
Annuities
"Annuity rates, influenced by government bond yields, may experience downward pressure following the rate cut. Individuals approaching retirement should assess the timing of annuity purchases and consider a diversified approach to retirement income, possibly combining annuities with drawdown strategies. Given the recent market volatility too it is important that retirees take a careful look at their finances and don’t make any drastic decisions without getting help.
Credit cards and debt
"While credit card APRs may not immediately reflect the base rate change, the overall borrowing environment becomes more favourable. Consumers should take this opportunity to review their debts, consider consolidating high-interest obligations, and explore balance transfer offers to reduce interest payments.
Economic context
"The Bank's decision reflects the ongoing need to support a slowing economy while keeping inflation in check. In this environment, it's important for people to remain flexible with their finances. Inflation may be moderating, but uncertainties like global trade tensions and shifting political landscapes mean volatility is likely to persist. This is a timely opportunity to revisit your financial plans, making sure both short-term cash needs and long-term growth goals are still aligned and achievable."
