The Bank of England cut interest rates for the fifth time to 4%! The benchmark rate hits a two-year low.
2025年08月12日
The Bank of England cut interest rates to 4%,
with the benchmark rate hitting a two-year low and borrowing costs continuing to decline.
The Bank of England has cut its benchmark interest rate by 0.25 percentage points to 4%, the lowest borrowing cost in over two years.
The August rate cut was approved by a 5-4 vote from the nine-member Monetary Policy Committee, marking the second time in history that a vote has been divided, after one economist had hoped for a 0.5 percentage point cut.
The Bank of England’s benchmark interest rate reached a high of 5.25% in 2023 and has been steadily declining since. While the current rate is already at 4%, a further reduction is still possible. Governor Andrew Bailey stated that interest rates are trending downwards and future cuts will be gradual and cautious. Interest rate changes directly impact the mortgage, credit card, and savings rates for millions of people.
The Overall Impact of Interest Rate Cuts on the Real Estate Market:
Is it good for the housing market? Yes, it is!
I·What is an interest rate? Why does it change?
The Bank of England’s benchmark interest rate is the rate it charges commercial banks for borrowing, which in turn affects the fees these banks charge customers for loans (such as mortgages) and the interest rates they pay on savings.
In other words, the benchmark interest rate directly reflects the cost of borrowing plus the return on savings.
The Bank of England’s main objective in adjusting interest rates is to maintain the UK inflation rate at 2%. When inflation exceeds the target, the central bank typically raises interest rates to curb spending, reduce demand, and control price increases.
However, in recent months, although the UK inflation rate has remained above the target, the UK economy has been relatively stable and the labor market relatively weak. Under these circumstances, the central bank has chosen to cut interest rates to encourage consumption, promote business investment, and create jobs, thereby boosting the economy.
II·Current State of Inflation in the UK
The main inflation indicator, the CPI, is projected to grow at 3.6% over the 12 months to June 2025, up from 3.4% last month.
While well below the peak of 11.1% in October 2022, it remains above the Bank of England’s 2% target, posing a significant challenge for policymakers.
III·Will Interest Rates Fall Further?
While Bank of England Governor Andrew Bailey has stated that future interest rate cuts will be gradual and cautious, considerable uncertainty remains.
Currently, rising labor costs in the UK may lead some businesses to raise food prices, thus pushing up inflation. The Bank of England, in its latest monetary policy report, projects that the inflation rate will peak at 4% in September, double its target of 2% and higher than the 3.8% forecast in May.
In early July, Bailey stated that the central bank was prepared to cut interest rates “significantly” if the job market showed signs of slowing. Recent data shows declining employment, fewer job vacancies, and rising unemployment.
Meanwhile, the annual growth rate of average regular income excluding bonuses slowed to 5% between March and May. Combined with uncertain global economic events such as US tariffs, it is difficult to draw a definitive yes or no answer.
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