Base rate cut to 4.5% – Martin Lewis explains what it means for your money

It's also used by the Bank of England as a tool to control inflation (the rate at which prices rise). The Bank has a target of 2% for the Consumer Prices Index (CPI) measure of inflation, which is set by the Government.

This is the third time the Bank has cut the rate since August 2024, when it fell from 5.25% to 5%. The last cut, from 5% to 4.75%, was in November 2024. Here's what you need to know, plus how mortgage rates are changing in reaction.

Martin Lewis explains what the base rate cut means for your money

MoneySavingExpert.com founder Martin Lewis has set out what the base rate cut means for your personal finances in a nutshell. Plus we've more info on mortgages and savings below.

Why the base rate was cut

The Monetary Policy Committee, which determines the rate, voted by a majority of seven to two to reduce the base rate by 0.25 percentage points to 4.5%. Two members voted in favour of cutting the rate further, to 4.25%. Explaining the reasons for its decision, the Bank said "there had been substantial progress on disinflation".

The latest figures show that CPI inflation fell to 2.5% in December. Despite this being above the Bank's target, it was lower than expected. Combined with low growth in the economy, it's led to the Bank choosing to cut the base rate to 4.5% – its lowest point in 18 months.

Nicholas Mendes, of mortgage broker John Charcol, said: "The Bank of England's decision to cut the base rate reflects growing concerns over the UK's sluggish economic growth. With GDP (gross domestic product) flatlining for the past six months, demand remains weak, and lowering borrowing costs should help to boost investment, consumer spending, and business confidence."

According to Mendes, this most recent rate cut marks a shift in the Bank's priorities from focusing solely on inflation to supporting the economy more broadly, but he warned: "The challenge now is to strike the right balance without allowing inflation to creep back up. Wage growth remains stubbornly high at 5.6%, and weak productivity raises the risk that inflationary pressures could re-emerge if demand picks up too quickly."

When will the base rate fall again?

Experts say that uncertainty in the global economy could slow down the rate of future cuts.

Holly Tomlinson, financial planner at Quilter, said: "While some expect rates to drop as low as 4% by the end of the year, global factors could complicate this trajectory.

"In particular, the return of Donald Trump to the White House and the prospect of renewed US trade tariffs [taxes charged on goods imported to the US from other countries] could stoke inflationary pressures worldwide, potentially forcing central banks, including the Bank of England, to take a more cautious approach."

Mendes agreed: "While the UK may not face direct levies, a weaker pound could push up the cost of imports, adding to inflationary pressures. The Bank's next moves will depend on how wage growth, productivity, and broader economic conditions evolve in the coming months."

I have a mortgage – what does this mean for me?

Here are the key need-to-knows for mortgage borrowers:

• For those on a fixed mortgage deal, there's no change for now. Regardless of what happens to the base rate, the amount you pay WON'T change during your fixed period.
  
  However, if you're within the last few months of your fix, you might want to look at new deals now – especially if you value certainty. You can usually lock in a new rate three to six months ahead of time, which prevents you from rolling on to your lender's costly standard variable rate (SVR) and can act as insurance against interest rates rising before your current deal ends.
  

• If you're on a tracker mortgage that 'tracks' the base rate, you'll see your rate come down. Plus a change to your monthly repayment within days or weeks, depending on when your next repayment is.
  

• If you're on your lender's SVR, the rate you pay MIGHT also come down. You're usually moved on to your lender's SVR after your fix or tracker deal ends. SVRs can be changed by lenders at a whim, though normally it coincides with changes to the base rate. See our table below for a full lender-by-lender breakdown.
  
  SVRs are typically far more costly than fixed and tracker deals – currently they tend to range between 6% and 9%. You should check if you can save by switching now (which is likely).

Mortgage changes lender-by-lender

I'm a saver – what will happen to rates?

Since the base rate was last cut in November, we've generally seen savings rates drop across the board, and the latest cut means they're set to continue to decrease.

We contacted all major providers to ask them what they're doing in response to the base rate cut. So far, three lenders have confirmed cuts:

• Chase will cut the rate on its standard linked saver from 3.5% to 3.25% from Thursday 13 February and then to 3% from Wednesday 19 February.

• Co-op Bank will cut the rate on six of its variable savings accounts by up to 0.13 percentage points from 23 April 2025, while the rate on its 'Base Rate Tracker' account will decrease by 0.25 percentage points from Thursday 13 February.

• Santander will cut the rate on its 'Rate for Life' and 'Good for Life' savings accounts by 0.25 percentage points from 3 March 2025.

Check you're getting the best possible savings rate

The first step is to check your interest. At the very least, you should be getting the top standard easy-access rate. Millions are on pants rates, and it's simple and easy to move your money to where it pays more. And if you're on a fix, diarise to act before it ends.

• Currently, the top 5.03% easy-access cash ISA beats top normal savings rates. It's a winner for anyone who hasn't already maxed this year's £20,000 ISA allowance. Trading 212 pays 5.03% and allows you to transfer in all the money you have in previous years' cash ISAs. It's worth noting that its savings safety protection comes from Barclays, NatWest, or JPMorgan. See our Cash ISAs guide for full info.

• Used up your ISA allowance and have more to save? The top rate for a normal easy-access saver is with Coventry Building Society, which pays 4.85% and allows four penalty-free withdrawals per year (you get charged 50 days' interest on the amount withdrawn from your fifth onwards).

• Got money to lock away? The benefit of fixed-rate savings is certainty, but in return, your money is locked away without access. Habib Bank Zurich offers 4.65% for a six-month fix, only just beaten by SmartSave's one-year fix offering 4.66%.

Rates are constantly changing, so the key is to regularly monitor what you're getting compared to the top rates available. Ditching and switching easy-access accounts is easy – keep an eye on our Best savings rates guide.