Interest rates: Bank of England UK base rate cut explained - what BOE decision means for you and mortgages

• The Bank of England has lowered interest rates from 5% to 4.75% for the second time this year
• The rate cut is aimed at easing borrowing costs, but inflation is expected to remain high in the short term
• The decision follows the autumn Budget, which raised taxes for businesses and increased government spending
• Lower interest rates could reduce monthly mortgage payments for some borrowers and help new mortgage seekers
• But past rate hikes still affect existing borrowers, especially those with fixed-rate mortgages

The UK has lowered interest rates for the second time this year, as the Bank of England expects borrowing costs to decrease slowly, despite uncertainty after the autumn Budget.

The Bank’s Monetary Policy Committee (MPC) announced on Thursday (7 November) that the rate would drop from 5% to 4.75%.

Governor Andrew Bailey said that since UK inflation is now below the 2% target, the Bank was able to reduce rates to their lowest level since June last year.

“We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much,” he said. “But if the economy evolves as we expect, it’s likely that interest rates will continue to fall gradually from here.”

But what does it mean for the average UK spender, and how will the interest rate change affect mortgages and borrowing? Here’s everything you need to know.

Why has the interest rate been lowered?

The MPC said it took into account the autumn Budget introduced by Chancellor Rachel Reeves last week, especially her decision to raise taxes for businesses.

These tax increases and higher government spending are expected to boost economic growth by 0.75% by this time next year, compared to earlier predictions from August.

The Budget is also expected to push up Consumer Prices Index (CPI) inflation by just under 0.5% in late 2026. As a result, inflation is now expected to hit the Bank’s 2% target in the second quarter of 2027, which is one year later than previously thought.

There is “significant uncertainty” about the jobs market, with businesses facing higher national insurance taxes and a higher minimum wage starting in April, the MPC said.

The effect on inflation will depend on how much and how quickly businesses pass on these costs through higher prices, wages or employment, or if they absorb them into their profits.

If businesses raise prices for consumers, this could put more pressure on inflation, according to the MPC’s analysis.

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How will the interest rate affect mortgages?

The decision is set to relieve some pressure on borrowers who have faced elevated mortgage and loan costs since rates started rising three years ago, and lower interest rates typically mean lower monthly payments for new borrowers.

If someone is looking to take out a mortgage now or in the near future, the rate cut (from 5% to 4.75%) might help them secure a better deal, especially if they have a good credit score.

This could mean they pay less over the life of their mortgage compared to previous higher rates, but the impact might not be dramatic right away, as rates are still relatively high compared to historical lows.

People taking out new mortgages might still face higher borrowing costs than in the past but will benefit from the gradual decline over time.

For homeowners with existing, variable-rate mortgages, the immediate effect will likely be a decrease in their monthly payments as their interest rate adjusts in line with the Bank of England’s rate changes.

The MPC has also said that the impact of past interest rate hikes are still leading to higher borrowing costs for existing mortgage holders.

Around 800,000 fixed-rate mortgages with an interest rate of 3% or below are expected to be refinanced per year, on average, until the end of 2027.

These homeowners may find that refinancing will be more expensive, as rates are still higher than what they paid before. Some homeowners have reduced their spending in anticipation of paying higher rates, according to the MPC’s analysis.

Will things get cheaper?

The news about the interest rate cut doesn't necessarily mean that things will get cheaper for the average spender right away.

While the rate cut may help keep inflation under control, it’s not a direct signal that goods and services will become cheaper right away.

In fact, the Bank of England expects inflation to remain higher in the short term, especially with the impact of tax increases and government spending announced in the Budget.

The MPC also noted that inflation might not hit the Bank’s 2% target until mid-2027, which is a year later than originally expected. So, prices for everyday goods and services could still stay higher for the foreseeable future.

What do you think about the recent interest rate cut? Will it make a difference to your borrowing costs, or do you think inflation will still be a bigger challenge? We’d love to hear your thoughts - share your opinions in the comments section.