Bank of England interest rates DROP to 4.25% in win for homeowners - but inflation pressure mounts

In a decision by the Bank's nine-member Monetary Policy Committee (MPC), the majority voted 5-4 in favour of a 0.25 percentage point reduction, marking the lowest rate since May 2023.

Two members of the MPC, Swati Dhingra and Alan Taylor, advocated for a larger cut of 0.5 percentage points, while Catherine L Mann and Huw Pill argued for maintaining the rate at 4.5 per cent.

The committee emphasised that it remains "sensitive to heightened unpredictability in the economic environment" and believes a "gradual and careful approach" to rate cuts is the most suitable strategy.

Greg Marsh, consumer finance expert and CEO of household money-saving tool Nous.co, said: "We can thank Donald Trump for this – the cut comes partly in response to his global trade war and its impact on UK jobs and growth. And experts are predicting the base rate will drop further, to 3.5 per cent, by the end of the year.

"It’s good news for mortgage holders. A typical household with a tracker mortgage will see their payments fall by £30 a month. But I wouldn’t start throwing the cash around just yet.

"Inflation is expected to jump up again this month, driving up the cost of everyday essentials. And at the same time, roughly 20,000 people who took out five-year mortgages at rock-bottom rates – typically below two per cent – are due to refinance in May alone.

"They will typically see their monthly repayments increase by hundreds of pounds."

Kevin Mountford, co-founder of Raisin UK said: "While inflation has eased recently, it’s still expected to creep back above three per cent, with the OBR forecasting a peak of 3.7 per cent later this year before it begins to fall again.

"Ordinarily, such a scenario would limit the Bank of England’s room to manoeuvre, but with economic growth faltering and headwinds gathering, including the uncertain fallout from Trump’s new tariffs, the MPC is likely to prioritise economic support when it meets."

UK economic growth is expected to be stronger than previously thought this year, but weaker over 2026 as the impact of tariffs on global trade takes its toll, according to new forecasts from the Bank of England.

The projections show gross domestic product (GDP) will average at one per cent this year, marking an upgrade from the 0.75 per cent growth predicted in the Bank’s last report in February.

This is largely due to growth over the first three months of 2025 being higher than the Bank had previously anticipated.

But the forecast for 2026 has been downgraded to 1.25 per cent, from 1.5 per cent previously.

The Bank also cut its growth outlook for the world economy to 1.5 per cent in 2026, from two per cent previously, as new US tariffs and heightened uncertainty over global trade weigh on economic activity around the world.

Advice for homeowners:

Alastair Douglas, CEO of TotallyMoney, stressed the importance of taking action before their current deal expires. He said: "If your current deal is ending this year, then check your credit report is in order, and start taking the next steps to securing your next offer."

He warned: "Otherwise, you might find yourself on your bank's Standard Variable Rate, and your interest payments could jump to eight per cent."

Douglas also mentions the opportunity for homeowners to lock in a better deal early, stating: "Some banks are offering sub-four per cent mortgages, and you might be able to lock in a product transfer or a new deal six months before your current deal ends."

He adds a final piece of advice: "Just make sure you factor any fees into your calculations, and shop around for the best deal for you, not just the one with the lowest APR."