Bank of England base rate cut to 4.25% following global tariff turmoil

In the wake of new tariffs announced at the start of last month by US President, Donald Trump, and the widespread market turmoil they generated, the Bank of England’s Monetary Policy Committee (MPC) today voted in favour of lowering the UK base rate to 4.25%.

This outcome was as many anticipated; while latest figures from the Office for National Statistics (ONS) revealed GDP increased by 0.5% in February, there are concerns the new tariffs could discourage spending and stall economic growth.

Lenders quick to act on swap market volatility

Fortunately for mortgage borrowers, swap market volatility and expectations for future base rate reductions presented lenders with an opportunity to make cuts to their ranges. As a result, the average two-year fixed mortgage rate fell from 5.32% to 5.18% between April and May – its lowest in more than two years. Meanwhile, the average rate charged by a five-year fixed deal dropped from 5.18% to 5.10% over the same period.

It’s not just declining rates borrowers stand to benefit from; Oliver Dack, Spokesperson at Mortgage Advice Bureau, added that “a more competitive mortgage market tends to drive innovation and can see lenders more willing to stretch their multiples” which could help first-time buyers achieve their dream of homeownership.

However, Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, reminded would-be borrowers they must “feel comfortable with their mortgage and understand the implications of missing any repayments”.  She also cautioned lenders that “any relaxation to stress tests must be deployed with care and not to the detriment of borrowers later down the line”.

As for those already on the property ladder, Dack continued to encourage borrowers coming to the end of an initial fixed term to book a new deal early.

“Although it’s possible rates could fall further in the weeks and months ahead, there’s no knowing how long it will be until we see significant movements in pricing. In the meantime, borrowers determined to wait it out while sitting on a lender’s Standard Variable Rate (SVR) risk much higher monthly repayments,” he explained.

Currently, those charged the average SVR of 7.58% are paying £373 more per month than if they locked in a typical two-year fixed deal (based on a £250,000 mortgage repaid over 25 years).

“It’s understandable some may be worried about potentially missing out on more favourable rates, but this shouldn’t deter borrowers from securing a new deal. Instead, they should check their broker is monitoring rates on a regular basis and concentrate on finding the best mortgage for their current needs”, Dack concluded.

“Savers must be vigilant”

Savers, meanwhile, must be vigilant in the coming weeks as providers are often quick to pass on base rate reductions to their variable products. Three previous cuts to the UK’s central interest rate over the past year, for instance, saw the average rate paid by an easy access savings account tumble from 3.11% in May 2024 to 2.79% by the start of this month.

There’s also a risk new US tariffs could further diminish returns in real terms by fuelling a rise in the costs of goods and services. “Inflation sits above its 2% target and the biggest high street banks pay an average of 1.63%^* across easy access accounts,” said Springall, adding “convenience comes at a cost if savers are not prepared to shop around and switch their pots”.

By contrast, the best easy access accounts pay well in excess of 4.00% AER - many of which are offered by lesser-known challenger banks. That being said, Springall urged savers to “check the terms of these accounts before they invest” as some impose restrictions on withdrawals.

Alternatively, with the Office for Budget Responsibility (OBR) estimating around 2.5 million people will pay higher-rate tax this year and be eligible to earn just £500 in tax-free interest from their savings, those concerned about exceeding this amount may want to consider an ISA.

Offering more than 5.00% AER, many of the best easy access ISAs outperform their traditional counterparts. What’s more, with the 2025/26 tax-year getting underway a little over a month ago, savers have a renewed £20,000 ISA allowance to utilise.