Interest rate cuts – what you need to know
What the rate cut means for mortgages, savings and the market
The Bank of England recently cut UK interest rates to 4.25%, the lowest level in two years. It’s a big move that affects everything from mortgages to investments, so let’s break it down.
Why did interest rates go down?
The short version? Inflation's been lower than expected.
That’s thanks to things like cheaper energy bills and more affordable goods coming in from abroad. The Bank of England is trying to keep inflation steady, so with things cooling off a bit, they’ve decided to ease rates too.
They still think inflation might creep up again later this year – but not by as much as they thought before.
Could interest rates drop again this year?
In short – maybe. The markets think they will – some are expecting rates to drop further, to around 3.5% by the end of the year.
But it’s all a bit up in the air. Things like global trade deals and economic growth are constantly shifting. Even the Bank’s forecasts have already started to look out of date after the latest developments in UK and US trade deals.
So, in short: it could happen, but it’s not a sure thing.
What about investments – what happens there?
Generally, lower interest rates can be a good thing for investments. They make borrowing cheaper for businesses and consumers, which can boost spending and economic growth – and that often helps company share prices.
That said, markets don’t always react the way you’d expect. In this case, the interest rate cut was already pretty much expected – so it didn’t cause a big stir.
But there’s definitely a sense of uncertainty in the air, with the Bank’s rate-setting committee split on whether to cut, hold, or cut more. It shows just how tricky things are to call right now.
Good news if you’re buying your first home
If you're using a Lifetime ISA to save or invest for your first home, this rate cut could help make mortgages a bit more affordable when you're ready to buy.
When interest rates come down, mortgage rates often follow – meaning monthly payments could be lower. Some lenders had already started cutting rates before the announcement, expecting this to happen. But this move could help keep things heading in the right direction.
Just a heads up: not all mortgage rates move at the same time – fixed and variable rates react a bit differently, and things can change quickly depending on what the Bank does next.
What about savings?
This is where the news might not be so good. Lower interest rates mean lower returns on cash savings, especially for people with variable-rate accounts. Some of the best savings rates still beat inflation, but that might not last long.
That’s why some people are turning to investing as a way to grow their money over the long term.
🔔 Always remember, the value of your investments can go down as well as up. Dodl doesn’t give financial advice, but we do hope the info is helpful! Past performance is not an indicator of future performance.