The Bank of England has the opportunity to cut the UK’s central interest rate as soon as this week.
Speaking today ahead of her upcoming Autumn Budget, the Chancellor of the Exchequer, Rachel Reeves, said she wanted to create an environment that would support the Bank of England in lowering the base rate.
“Interest rates, which rose from 0.1% to 5.25% in the last Parliament, have now been cut five times but, at 4%, they are still a constraint on business borrowing and a burden on family finances,” said the Chancellor.
“The choices I make in the Budget this month will be focused on getting inflation falling and creating the conditions for interest rate cuts to support economic growth and improve the cost of living,” she added.
The base rate is the amount of interest the Bank of England charges other banks and building societies to borrow money which, in turn, affects how much these providers charge their borrowers and pay savers. As such, it can be used as a tool to keep inflation in check or to spur greater levels of spending and employment.
The Bank of England’s Monetary Policy Committee (MPC) meets at least eight times a year to vote on whether the UK’s central interest rate needs to be adjusted; its next decision will be announced in just two days’ time (on 6 November 2025).
Will the Bank of England cut interest rates this week?
There’s much for the Bank of England’s rate-setting committee to consider in its next meeting. On the one hand, inflation came in less than expected for the year to September, at 3.8% (the Bank of England itself forecasted 4%). Although this could open the door for the MPC to lower the base rate on Thursday, this figure is still some way off the Bank’s 2% target.
There’s also the Autumn Budget itself to contend with; it could be that the Bank of England holds off amending the base rate as it waits to see how the economy reacts to any new measures announced by the Chancellor on 26 November 2025.
While the outcome is almost too close to call, banks such as Barclays and Goldman Sachs are reportedly hedging their bets on a 0.25 percentage point cut which would see the base rate fall to 3.75%.
What could this mean for consumers?
Mortgage borrowers would likely welcome a reduction to the base rate as it’s often the case lenders pass cuts on to their variable rate deals. However, it’s important to remember that fixed mortgages tend to be less immediately affected by changes to the UK’s central interest rate, as lenders usually consider market forecasts ahead of time when setting these prices.
There are also other factors lenders must account for, such as the swap market and their own internal targets. This might explain why average fixed mortgage rates fell by smaller margins throughout August than in previous months despite the base rate being cut to 4%.
Meanwhile, a base rate reduction could spell misery for savers – particularly those who hold their money in a variable account (such as an easy access or notice savings account) which often feel the full force of a cut. With inflation still higher than desired, this could make it more difficult for savers to earn a real return on their hard-earned cash. It’s therefore crucial to regularly review top rates and consider switching if more competitive options are available.