Interest rates cut to 4.25%

Interest rates have been cut by a quarter of a percentage point to 4.25%.

The reduction had been widely expected and many analysts are now predicting that rates will fall further over the coming months.

This is the second rate cut this year and the fourth time they’ve been reduced since they peaked at 5.25% last year.

The Bank of England’s decision comes shortly after inflation fell to 2.6% in March - down from 2.8% a month earlier.

However, it also comes against the backdrop of a trade war being waged by the US government, which many experts believe will lead to a slowdown in global trade and push up prices.

Andrew Bailey, governor of the Bank of England, said: "The past few weeks have shown how unpredictable the global economy can be. 

“That’s why we need to stick to a gradual and careful approach to further rate cuts. Ensuring low and stable inflation is our top priority.”

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 borrowing costs for loans, such as mortgages and credit cards, as well as the returns you can get on savings.

They’re also the lever that the Bank of England can pull if it wants to bring down inflation or encourage spending.

How do interest rates affect me?

Mortgage rates

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

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

But a cut in interest rates doesn’t automatically mean that mortgage rates will come down too.

Lenders will also look at other factors such as market conditions and risk appetite before making any decisions.

And if you’re on a fixed-rate mortgage, it could be a while before you see any changes.

Estimates from UK Finance suggest this 0.25% cut in interest rates will bring down monthly mortgage payments by £28.97 for people with a tracker mortgage, and £13.87 for those on a standard variable rate.

But the same estimates show that people on fixed-rate mortgages will see no changes to their monthly payments.

Credit cards and loans

Lenders can charge more for borrowing when interest rates are high, so a rate cut can be good news if you’re paying back a loan.

But credit cards don’t always follow the bank rate closely, as lenders will weigh up factors like credit risk and their own specific policies.

Savings

High interest rates can be good for savers because it can mean you get better returns on your savings accounts.