Interest rate cut for first time since 2020: here’s what it could mean for mortgages

The Bank of England (BoE) has announced it will reduce the Base Rate to 5% this month, a reduction of 0.25%, and the first cut in four years. The Base Rate had been held at 5.25% since August 2023, after 14 consecutive rises.

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The Bank had been raising, and holding, rates to tackle high levels of inflation, which was in excess of 10% in early 2023 – way above the government target of 2%. It was announced in June that inflation had fallen back to its target of 2%, and inflation remained at the same level in July.

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There had been much speculation around how the Bank might vote today, with the markets predicting an equal chance of an interest rate hold, and a 0.25% cut.  

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The split opinion around whether the Bank might hold or reduce rates today was related to ‘service inflation’ remaining stubbornly high in the month to June. This is inflation relating to ‘services’ – such as hospitality and culture – rather than the ‘goods’ that might go into your basket of shopping.

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The Bank’s focus is to strike the right balance between lowering inflation and keeping the wider economy healthy. This drop shows the Bank’s belief that its plan to control inflation is working. And that to continue to hold rates may have a negative knock-on effect on businesses and households, further down the line

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