Turning the tide: Bank of England lowers the base rate to 5%

In a knife-edge decision, the Bank of England’s (BoE) Monetary Policy Committee (MPC) has voted to reduce the base rate by 25 basis points, bringing it down to 5%. This marks the first rate cut in over four years.

Five members of the MPC, including Governor Andrew Bailey, voted to lower the base rate by 25 basis points. The remaining four backed another hold.

Expert predictions were almost evenly split on the outcome of today’s meeting. Just over half (52%) of financial advisers and savings professionals expected a rate cut. Despite the uncertainty, the MPC decided that a modest reduction was appropriate given the current economic conditions.

Sticky services inflation is an ongoing challenge

The base rate had been held at a 16-year high of 5.25% since last August to curb inflation. While inflation has recently hit the BoE's 2% target for two consecutive months, concerns about high services inflation and wage growth persist. The UK's core inflation, excluding volatile items like food and fuel, remains above 3%, and services inflation is stubbornly high at 5.7%.

Learn more: inflation, the base rate, and GDP

Bailey and the MPC members weighed these factors carefully. The decision to cut the rate reflects a cautious optimism that inflation will remain under control, allowing for a slight easing of monetary policy. Commenting on the decision, Bailey said:

“Inflationary pressures have eased enough that we’ve been able to cut interest rates today. But we need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much. Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country.”

Now’s the time to review your savings strategy

For savers, the reduction in the base rate to 5% presents both opportunities and challenges. While the cut may lead to a slight decrease in the interest rates offered by banks, there’s still a window of opportunity to lock in competitive rates before further reductions happen.

Flagstone’s Co-Founder & CEO, Simon Merchant, commented on the decision:

“Uncertainty around when the first base rate cut in over four years would come has been unhelpful for savers, encouraging inaction and stasis. It's reasonable to expect that we will now start to see some softening in the rates banks pass on. Savers should act now and enjoy the variety of strong rates still on offer.

“Savers would do well to follow the guidance of advisers and savings professionals, and take advantage of the competitive rates available on long and shorter-term savings accounts right across the market. From instant access accounts to five-year fixed-term accounts, it’s not hard to find inflation-beating rates.”

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How can you make your money work harder?

Ask yourself: are you getting the best possible returns on your cash? Loyalty to old accounts often doesn’t pay off, as many don’t offer competitive rates. If you want to make your money work harder, consider switching to accounts that provide higher interest.

The variety of savings products on offer is broader than it has been since 2012. You can find options tailored to your needs, whether you prefer the flexibility of instant access or the higher returns of longer-term fixed accounts. The key is to act now while strong rates are still available.

Explore: growing and safeguarding your savings

What’s the outlook for the rest of the year?

Today's decision to reduce the base rate to 5% hints at the possibility of further cuts in the future. Over half (54%) of experts predict that the base rate will drop to 4.5% or below by the end of the year. Savers should be prepared to act quickly to secure the best interest rates on savings accounts before any more cuts.