Bank of England cuts base rate to 0.25%: what it means for your finances

4 August 2016

In a long-expected move, the Bank of England (BoE) has today announced a cut to the UK base rate, taking it from 0.5% to 0.25% - the lowest it’s ever been. 

It’s the first time the base rate has changed since March 2009, when it dropped from 1% to 0.5%.  

As well as a cut to base rate, in a bid to stimulate the faltering economy the Bank of England has announced it will purchase further UK government bonds to the tune of £60 billion - otherwise known as Quantitative Easing (QE) - alongside £10 billion of corporate bonds.


The interest rate decision was voted for unanimously by the nine members of the Monetary Policy Committee (MPC), while QE and corporate bond buying was voted in 6-3 and 8-1, respectively.

Among this news was a gloomy prediction for the coming year as the BoE cut its growth forecast for 2017 from 2.3% to 0.8%.

Savings impact

Today’s interest rate cut is bad news for savers as it’ll likely mean savings rates plummet even further. This is because a low base rate means banks can borrow money from the Bank of England extremely cheaply, which in turn means they don’t have to fight for your deposits by competing with eachother over the best deals.

Cash savings returns are already paltry – a third of easy-access accounts offer rates lower than 0.25%, according to website Savings Champion – and with the reported threat of negative interest rates for business accounts on top of this, many will be looking for new places to deposit their cash, or even new ways of saving it. Furthermore, a further £100 billion of cheap funds will be made available to banks, giving them even less reason to offer decent rates. 


Calum Bennie, savings expert at Scottish Friendly, says: “Any false sense of security around the outlook for savers post-Brexit has now been removed. It’s particularly ironic that this move is most likely to affect the cash savings of the over 60s, the demographic that were among the most in favour of leaving the EU.”

For those looking to make their cash work harder, investing may be a better option for maxing returns. Many Moneywise readers say they are already using peer to peer lending to get better interest on their money. Others will be looking to start investing for income. See the Moneywise First 50 Funds guide for the best place to start.


Mortgage impact

Lower interest rates will however be a boon to mortgage borrowers on a tracker deal, as these typically rise and fall in line with the base rate.

Hannah Maundrell, editor in chief of, says: “The only people guaranteed to benefit are those on tracker mortgages. It’s likely to save you about £34.95 a month (around £420 a year) on a 25 year £170,000 mortgage.”

Peter Harrison, director of money at MoneySuperMarket adds: “The biggest positive change is likely to be felt by the millions of first time buyers in the UK, especially those on tracker mortgages, who’ve bought their house in the past seven years and therefore have never experienced a rate change.”

However, Tashema Jackson, money expert at, warns: “It remains to be seen if the banks will pass the benefit of lower rates on to other mortgage customers.”

It is worth bearing in mind that first-time buyers will still need a deposit, and with saving rates being what they are, this will take even longer to accrue than it did before.


Pensions impact

Steven Cameron, pensions expert at Aegon doesn’t beat around the bush when he says: “The further cut in interest rates means now is probably the worst time ever to be making a retirement decision, with those buying an annuity today locking in to super-low returns for life.”

Annuity rates have already plummeted post-Brexit, if you’re thinking of taking one out, experts have warned that it may be better to act sooner rather than later. However, remember to always shop around – you’re unlikely to get the best deal simply by accepting the one offered to you by your pension provider.


Gareth Shaw, head of consumer affairs at Saga Investment Services, says: “Anyone looking to generate a decent, regular income from their savings will now find their money flailing in a flatlining market.

“Retirees in particular must now be thinking about moving up the risk ladder with their savings to help deliver the income they need.  Some 81% of over 65s with an individual savings account (Isa) hold their savings in cash and its clear this will no longer suffice. They should now be considering building a diverse portfolio of shares and bonds, which can help pensioners find the yields they need.

“This doesn’t mean piling all your money into the stock market. Our research suggests that a small shift of 10% of your money from cash products into financial assets could boost income by 76%. A stocks and shares Isa isn’t just the preserve of sophisticated traders with millions to blow – you can invest small amounts to start off with and see what a difference it could make to your finances.”

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