As experts at Hargreaves Lansdown explain, a lower Bank Rate has wide-ranging implications — from markets and the wider economy to savings, annuities and household finances. With inflation still well above target and growth faltering, today’s cut offers some relief, but also highlights the delicate balancing act facing policymakers and consumers alike.
The Bank of England has released the minutes from the Monetary Policy Committee: Interest rates and Bank Rate: our latest decision | Bank of England
What the cut means for the economy and markets
Emma Wall, Chief Investment Strategist, Hargreaves Lansdown:
“The Bank of England Monetary Policy Committee has cut interest rates to 3.75% from 4% in a move that surprised no one. The rate cut was all but nailed on yesterday thanks to inflation data which showed price growth slowed to 3.2% for November, down from 3.6% the previous month. Weak growth data last week that showed four months of GDP contraction to the end of October would have been another green light to the rate doves.
What has surprised markets is how tight the vote was however, making the path from here far less certain. While inflation is falling, it is still far above the Bank target of 2%, and the MPC voting record revealed that four members favoured a hold today – likely because of these pricing concerns. Bank Governor Bailey has long drummed that decisions will be data led, and it is interesting to see this in action – jobs data is weaker, and economic growth is non-existent, which could have swayed more members to vote for the cut. But to misquote James Carville – ‘it is all about inflation, stupid’. Bailey has commented in the press conference live now that jobs data is not yet conclusive. The inference being that inflation at 50% higher than target, is. The gilt market is largely unmoved, though we have seen some yields come down a little through the day – a sign that today’s action was already priced in.
Throughout 2025, the 10-year gilt yield has been broadly range bound. More recently, October saw a notable fall in yields (so a rally in prices) as expectations about future interest rate cuts increased. This was tempered slightly in the build up to the Budget in November, which saw some yield swings as information relating to potential changes in tax policy impacted views around future government spending affordability.
Since the Budget, yields have been relatively stable and have settled around the lower end of the range for 2025.
The FTSE 100 has reacted positively to the news – up on the open, although the cautious forward guidance has mean that it has given back some marginal gains on earlier trading. Lower interest rates are good news for any corporate with leverage, and has the potential to boost domestic consumption too, which in turn could support corporate revenues. The UK large cap index is up 28 points in intraday trading.”
What it means for savings
Mark Hicks, head of Active Savings, Hargreaves Lansdown:
“The Bank of England’s decision to cut the base rate today was locked in after the inflation print coming down lower than expected yesterday. As borrowing costs ease, we expect this move to put downward pressure on variable and easy access savings rates in the coming months, particularly as providers adjust to a lower interest rate environment. Despite this, savings rates have remained relatively resilient in recent weeks, with some providers still offering competitive returns amid strong market competition particularly in fixed rate products. Savers who fixed over the past 12 months have benefited from locking in attractive rates ahead of all the base rate reductions that we have seen. Fixed-term rates are likely to remain well-supported in the short term, with competition helping to keep many products above 4% over the coming months.
As a result, savers should continue to lock money away to earn above base rate and above inflation returns.”
What it means for annuities
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:
“2025 looks set to be another stellar year in the annuity market with incomes hovering close to all-time highs. The latest data from HL’s annuity search portal shows a 65-year-old with a £100,000 pension can get up to £7,667 per year from a single life level annuity with a five-year guarantee. Today’s rate cut could well see incomes drift down in the coming months, but annuities remain good value, and we can expect to see interest continue from people in search of a guaranteed income.”
What today’s cuts mean for your financial plans
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“Today’s interest-rate cut was so widely anticipated that there’s unlikely to be a major reaction among banks. Savings rates are likely to keep trending slowly downwards – protected to some extent by stiff competition. Meanwhile, mortgage deals have been getting cheaper for a while now, and this is likely to continue amid the ongoing price war. But any cut is a useful reminder to revisit your financial plans.
If you have savings, keep an eye on the rate you’re earning. The high street banks haven’t been slow to cut rates, and some are offering just 1% right now. More competitive accounts have held up far more robustly, but some of them will be on the move too. If your bank cuts your savings rate, don’t just resign yourself to it. Not all banks are equal and there are still easy access rates well over 4% on offer.
If you have a mortgage coming to an end in the next 3-6 months, it’s worth searching out a good deal. There are some great rates available right now, and you could snap up a two or five year fix for less than 4%. If mortgage rates fall before the remortgage is due, you can hunt around for a better deal. However, if they were to rise with a surprise in inflation, you’ll have locked in a bargain.
It’s worth looking at the reasons for the Bank of England’s decision, too. Inflation is above target, but the Bank is cutting rates. The only reason for this is that it’s concerned about underlying economic weakness, so it’s worth considering where you stand. Unemployment is on the rise and with the economy so sluggish it’s worth making plans for what you would do if your circumstances change. If you have expensive short-term debts, it’s worth considering paying them down, and if you don’t have an emergency savings safety net to cover 3-6 months’ worth of essential expenses, it’s worth beefing them up. You don’t need to transform your finances overnight, but if life takes a turn for the unexpected, you’ll be grateful for every step you took while the going was good.”
