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UK interest rates cut to 4% as pressure builds on household finances

Editor

August 7, 2025
4 min read

UK interest rates cut to 4% as pressure builds on household finances

UK interest rates have been cut to 4% by the Bank of England today, taking borrowing costs to their lowest point in over two years. It’s the fifth rate drop since last summer, and while the move had been widely expected, it still carries weight for households across the country, particularly those juggling mortgage repayments or considering their next steps with savings.

The interest rate cut lands at a time when many people are feeling the strain of rising costs, with food prices, travel fares, and energy bills still squeezing monthly budgets. At the same time, growth has stalled. The economy failed to expand in April and May, and while GDP rose by 0.7% earlier in the year, things have slowed again. Next week’s quarterly figures from the Office for National Statistics will shed more light on just how much of a wobble we’ve seen.

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For those on variable mortgages, the change offers some breathing room. Monthly repayments on a £250,000 mortgage could drop by around £40, according to Moneyfacts, depending on the lender. But it’s not great news across the board. Savers, especially those who rely on interest income, will likely see returns edge down further. Average savings rates have already slipped from 3.9% to 3.5% over the past year, and that trend looks set to continue.

The Bank’s Monetary Policy Committee has been walking a tightrope. On one side, inflation remains above target at 3.6%, fuelled in part by rising travel costs and seasonal spending. On the other, wage growth is cooling, job vacancies are dropping, and unemployment has edged up slightly. Employers are also facing rising costs through higher National Insurance and a hike in the national minimum wage, creating a more complex backdrop for rate setting.

Speaking earlier today, economist Liz Martins of HSBC suggested that while more rate cuts are likely over time, they’ll probably come more slowly. She expects interest rates to drop to around 3% by the end of 2026, but warned that today’s move is part of a cautious process, not a dramatic shift.

The Bank of England also released its updated economic forecasts alongside today’s announcement, pointing to weak demand, sluggish business investment, and flatlining consumer confidence. If borrowing is now marginally cheaper, it may help support spending, but the bigger picture remains tentative.

This change doesn’t alter the fact that the cost of living is still a concern for many, nor does it guarantee a quick recovery. However, for those facing decisions about remortgaging or stretching their household budgets, a little relief from the Bank could go a long way, even if just psychologically.

You can explore the full monetary policy summary here, and for a wider look at how the UK economy is evolving and how policy changes affect everyday life, visit the Business & Finance pages at EyeOnLondon. We’d love to hear your views in the comments.

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About Author

Editor

Emma’s journey to launching EyeOnLondon began with her move into London’s literary scene, thanks to her background in the Humanities, Communications and Media. After mingling with the city's creative elite, she moved on to editing and consultancy roles, eventually earning the title of Freeman of the City of London. Not one to settle, Emma launched EyeOnLondon in 2021 and is now leading its stylish leap into the digital world.