Why?  The Bank of England’s Decision to Cut the Base Rate to 4%

The Monetary Policy Committee (MPC) voted by a slim majority of 5–4 on 6 August 2025 to reduce Bank Rate from 4.25 per cent to 4 per cent—the lowest level since March 2023. This decision marked the fifth cut since August 2024 and followed two and a half years of restrictive monetary policy aimed at bringing inflation under control A.

Key Drivers for the Rate Cut

• Substantial disinflation over the past 30 months The MPC noted that the restrictive stance of policy had successfully driven down inflation from its post-pandemic highs. Twelve-month CPI inflation climbed modestly to 3.5 per cent in Q2 2025 due to energy, food, and administered prices but remained on a downward path overall A.
• Easing domestic price and wage pressures Although pay growth remained elevated, it has fallen further recently and is projected to slow significantly through the rest of the year. Services price inflation has also flattened, reducing the risk of persistent second-round effects on overall inflation A.
• Emerging slack in the labour market
Latest data showed rising unemployment, slower job-vacancy growth, and subdued GDP expansion—signs that consumer spending power and wage growth are softening. This loosening of the labour market lessens inflationary pressures B.
• Inflation forecasts returning to target Despite current CPI running at 3.6 per cent, the Bank expects it to peak at 4 per cent in September before falling back to 2.5 per cent by 2026 and reaching the 2 per cent target in 2027. Those projections gave the Committee confidence that a modest easing now would not derail the medium-term inflation objective C.


Looking Ahead

• Further cuts depend on disinflationary momentum The MPC emphasised that future rate moves will hinge on how underlying inflation and wage-price dynamics evolve. If pay growth and services inflation continue to ease, more reductions could follow later in the year A.
• Impact on mortgages and savings
Variable-rate and tracker mortgage borrowers should see rates fall by around 0.25 percentage points in the coming weeks. Savers, however, face lower returns: average easy-access savings rates have already dropped in response to previous cuts—and may edge down further unless providers compete for deposits C.
• Risks and uncertainties
Temporary spikes in energy or food prices, renewed geopolitical tensions, or an unexpected shift in wage-setting behaviour could prompt the MPC to pause or even reverse course. Conversely, if growth stalls more sharply, the Committee might need to accelerate easing to support jobs and incomes.


Beyond the immediate policy change, you might also be interested in:

• How this cut fits into global central-bank trends • Sectoral impacts: from housing to corporate borrowing • Strategies for homeowners and savers to navigate a lower-rate environment