Interest rates cut again – don’t let your bank pay you less

Although inflation remains stubbornly above target, the Bank of England’s Monetary Policy Committee (MPC) went ahead with an expected base rate cut last week (7th August), lowering it from 4.25% to 4%.

This is the fifth cut in the past year, as policymakers grapple with a weakening economy, rising unemployment - all while inflation refuses to settle back to the 2% target.

But the decision was far from straightforward. It took two rounds of voting, the first time this has ever happened since the MPC was created in 1997, to reach a narrow 5–4 vote in favour of cutting rates. This unusual split highlights just how tricky the balance is between encouraging growth and keeping inflation in check.

Why cut rates when inflation is still sticky?

The cut was in response to a combination of economic pressures. Despite inflation rising to 3.6% in June, still well above the Bank’s 2% target, overall, the MPC judged that the risks to economic growth and employment were more pressing.

The UK economy has shown signs of contraction, with GDP shrinking in both April and May. At the same time, the labour market weakened significantly: unemployment rose to 4.7%, the highest in four years, and wage growth slowed. Businesses were also feeling the strain from recent tax increases, including a £25 billion hike in employers’ National Insurance contributions, which has had a detrimental effect to both hiring and investment.

At the same time, although inflation is still far higher than hoped, it is thought that much of this is being driven by temporary surges in food and energy costs. That said, the expectation is that inflation will rise further, peaking at 4% in September, before falling back to target in the next couple of years.  

Governor Andrew Bailey emphasised that while rates are still on a downward path, given the inflation risks “any future rate cuts will need to be made gradually and carefully.”

Rate changes have winners and losers!

Any cut to interest rates is likely to be good news for borrowers and businesses as TPO Partner David Dodgson explained on Sky News on Thursday evening. During his interview with Gillian Joseph, he said that for those with variable rate mortgages and those looking to buy “it’ll be less expensive to fund your mortgage, so that’s got to be good news”. He did add though that four out of five people hold a fixed rate mortgage so when interest rates come down, it doesn’t have an immediate effect on them.  

When asked how long this downward trajectory could last he explained “it’s interesting that the MPC are confident enough to reduce interest rates by 0.25% when inflation is at 3.6%, so they must be confident that inflation will be conquered and therefore they may be happy to make further cuts.”

Higher interest rates, he explained, “cause a problem not only for consumers who have loans, because they have less money to spend, but also for companies. Companies tend to borrow in order to invest, so if they have to pay more on that borrowing, they are not likely to be inclined to invest quite as much, which could mean that they won’t prosper as much as they would have hoped to, which can have an impact on the stockmarket too.”

Of course, lower interest rates are not good news if you’re a cash saver rather than an investor or borrower. It can lead to lower savings rates. That said, current savings rates are still holding up better than many might expect, and in fact, compared to February 2023, when the base rate was last at 4%, many top rates today are higher, as the table below shows.

If you can afford to tie up some of your cash, now is the time to get a move on, as rates could now start to fall. And you could even consider a longer term fixed rate bond – to lock into todays rates which may prove to have a been a shrewd move if rates do continue to fall.  

Don’t let your high street bank rob you!

If your savings are with a high street bank, shopping around could mean you increase your interest — even in a falling rate environment. That’s because the big names typically pay some of the lowest rates on the market, and they’re likely to reduce them further after this cut.

The good news is that it appears that many have finally realised that their high street bank is unlikely to be looking after them properly. According to a recent report by KPMG, high street banks have been losing substantial deposits to other savings providers, including challenger banks and building societies. The accountancy firm’s data suggests that the high street banks have lost the equivalent of £100 billion in savings, as savers have sought better returns for their cash.

Barclays recently cut the rate it’s paying on its Flexible Saver account – it is now paying savers just 1.11% AER. HSBC cut the rate on its Flexible Saver to 1.30% AER on 21st July, whilst NatWest is another high street bank to have made cuts recently. On a balance of between £1 and £25,000 the new rate is 1.15% AER, whilst balances of between £25,000 and £100,000 are now earning just 1.70%. Higher balances have seen cuts too; balances of £100k to £250k are earning just 1.95% and the rate on balances of over £250k is 2.55%.  

All of these rates could well be cut again after this latest Bank of England action. It’s not only high street banks making cuts. Earlier this year, before the February base rate cut, the top unrestricted easy access account – offered by Gatehouse Bank – paid 4.75%. Today, it pays 3.90%, significantly more than high street options.

The key difference is that while challenger banks may have also cut rates, often they continue to offer much more competitive returns. High street banks started from a lower base – and their new, reduced rates are even less attractive.

Quite simply you can earn more elsewhere, especially if you are prepared to fix – as our best buy tables show.

The top easy access rate now available is via Chase and is actually higher than the top rate at the beginning of the year, although the next best rates are now a little lower. However, there are many accounts paying 4% or more, so someone with £10,000 in savings could earn around £300 more over 12 months, simply by switching to a lesser-known provider.

And the top fixed rates are paying more than 4.50% AER.  

Take a look at our best buy tables for the latest rates. 

Stay safe when switching

Always make sure you’re moving to a legitimate account. If you receive an unsolicited email promising an unusually high rate, it could be a scam. Check best buy tables from a trusted source like The Private Office - or verify with the bank or building society directly using contact details from their official website or the FCA register.

And remember: never click on links in unexpected emails or texts. Going direct to the source could save you far more than you’ll ever earn in interest.

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The accounts and rates mentioned in this article are accurate and correct as of 10/08/2025.

The Financial Conduct Authority (FCA) does not regulate cash advice.