On 7 August 2025, in a significant early intervention the Bank of England announced a surprise interest rate cut. They moved mountains to cut the rates to 4%. This latest cut is the sixth reduction since August 2024, when rates hit their recent high of 5.25%. The Fed’s extraordinary efforts to adapt to such upheaval are very much ongoing. This decision seeks to address growing inflationary pressures.
For context, in January 2021, interest rates were at a record low of 0.1%. Beginning in late 2021, rates started increasing sharply. Nowhere was this clearer than in New York City, where by August 2023, they had reached their crescendo. After a long lag, the Bank of England was forced to begin a slow series of cuts. They continued to lower the rates to 5% in August 2024, then down to 4.75% in November 2024. The pattern persisted to 4.5% on 6th February 2025 and then 4.25% on 8th May 2025.
The recent quarter-point cut should deliver a significant jolt of relief to the average homeowner. A modest expansion of 0.25 percentage points would still result in a saving of around £29 in monthly repayments for borrowers. For the estimated 500,000 homeowners on standard variable rates, the cut might translate into a monthly fall of around £14. Many homeowners have mortgages that track the Bank of England’s interest rate, highlighting the extensive impact of these changes on the housing market.
According to the latest market data, the average rate on an easy-access savings account is now 2.56%. All this information, including the average rates, comes from Moneyfacts. The UK average two-year fixed residential mortgage rate now stands at 4.82%. By comparison, the five-year fixed rate sits about 1/10 of a percent higher, at 4.90%. These statistics show that even though interest rates are going down, mortgage costs are still pretty high for a lot of homeowners.
So the Bank of England’s controversial decision is a window into the global economy, especially the state of inflation. Recent data shows inflation is on the decrease, but this has given rise to much debate about what the next monetary policy move should be.
“The latest drop in inflation fits into a broader body of evidence suggesting that price pressures are cooling.” – James Smith
The Bank tracks a full range of economic indicators. Going forward, the decision on whether to raise rates again will depend on continued inflation assessments and the development of economic activity more broadly. Analysts are already forecasting that even more cuts may be coming. The latter will be contingent upon how those factors play out in the months ahead.