Bank of England policymakers reduced the UK base rate by a further 0.25 percentage points to 4.0% at their August meeting.
This was the third interest rate reduction of 2025, following cuts in May and February, and the fifth cut since August 2024, when the rate stood at 5.25%. The rate had been reduced to just 0.1% at the start of the Covid pandemic in March 2020, but then increased rapidly from December 2021, in response to rising inflation.
The cut was implemented despite UK inflation being almost 2% above the Bank of England target of 2%. The July inflation figure (CPI – Consumer Price Inflation) was 3.8%, and the Bank expects inflation to reach 4% later this year, stoked by higher prices for food and energy.
The decision to cut the interest rate required an unprecedented second vote from the nine members of the Monetary Policy Committee (MPC). The initial vote had 4 members voting to keep rates unchanged with 4 votes for a reduction of 0.25% and one for a reduction of 0.5%, subsequently changed in favour of the 0.25% reduction.
At the subsequent September meeting, the MPC voted by a majority of 7-2 to maintain the rate at 4%. The next meeting is due to take place on 6th November.
The reduction in the base rate should see slightly better deals on offer for mortgages, loans and other borrowing, but will also mean lower rates on savings products.
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The value of your investment can go down as well as up and you may not get back as much as you originally invested.