Interest rates cut to 4%

Interest rates have been cut by a quarter of a percentage point to 4%.

That's the fifth rate reduction since August last year and the lowest they've been for over two years.

The Bank of England’s decision to cut interest rates had been widely predicted by analysts, despite an uncertain global economic picture and rising inflation at home.

Inflation climbed slightly from 3.4% to 3.6% in June - above the Bank’s target of 2%.

What are interest rates?

The Bank of England interest rate is the rate at which the UK’s central bank lends money to commercial banks. 

Interest rates directly affect how much it costs to borrow money and the returns you can get on your savings.

They’re also the lever that the Bank can pull if it wants to reduce inflation or encourage spending.

Mortgage rates

When interest rates come down, mortgage rates usually fall as well. 

That can make it cheaper to borrow money to buy a house and increase demand for property.

But this isn’t guaranteed to happen.

Before making any decision, lenders will also look at other factors such as market conditions and risk appetite.

It also depends on what type of mortgage you have.

If you're on a tracker or standard variable rate (SVR) mortgage, you might see a difference.

But if you’re on a fixed-rate mortgage, your payments won’t change right away. 

Credit cards and loans

When interest rates are high, lenders charge more for borrowing. 

So a fall in interest rates can be good news if you’re repaying a loan.

But credit cards don’t always follow the bank rate closely, as lenders will base rates on factors like your credit history, risk and their own specific policies.

Savings

If interest rates go up, you can earn more from your savings account or cash ISA.

But if they fall, you might get lower returns.