Four interest rate cuts predicted in 2025: what it could mean for your money

Four cuts to interest rates are expected by the Bank of England (BoE) next year as inflation begins to ease.

What could this mean for borrowers and savers?

Hopeful outlook for inflation

Inflation rose to 2.3% in the 12 months leading up to September, which was higher than many had expected.

But Andrew Bailey, governor of the BoE, says he believes inflation will return to the BoE’s target of 2% soon.

If this happens, Bailey predicts the base rate will drop from the current 4.75% to 3.75% by the end of 2025.

What would the impact on borrowers be?

The potential for interest rate cuts is particularly good news for mortgage borrowers.

Here’s what to expect:

• Tracker mortgages: If you’re on a tracker mortgage, you would benefit directly from each cut, as these mortgages follow the BoE’s base rate closely.
• Variable deals: If you’re on a variable deal, there’s a chance your lender will adjust rates, but this may not happen immediately.
• Refinancing fixed deals: Lower rates might benefit borrowers nearing the end of their fixed-rate mortgage and who are looking to refinance.

Keep in mind that fixed mortgage rates don’t react immediately to interest rate changes. Instead, they tend to be based on future predictions.

Right now, the lowest five-year fixed rates are just above 4%, even though the base stands at 4.75%.

If the market starts to expect a BoE rate drop to 3.75%, we might see rates under 4% coming back into the market.

Ravesh Patel from Reside Mortgages has said BoE cuts would significantly affect the mortgage landscape, potentially bringing some deals into the 3%-4% range.

But that will depend on wider economic conditions, like inflation trends and lender competition.

Disappointing news for savers

While rate drops would be good news for borrowers, they could hit savers hard.

Rachel Springall from Moneyfacts said base rate cuts could be devastating for savers, especially those who rely on their savings interests to top up their income.

With high street banks already reducing savings rates, it’s crucial for savers to regularly check their accounts and consider switching if they’re getting a poor deal.

Watch this space

For now, these predictions are just that: predictions.

Anna Bowes from Savings Champion has said that while Bailey's statement is intriguing, the economic landscape can change quickly.

Political events and changing trade tariffs could impact inflation, which could change BoE’s expectations.

Keep an eye on our blogs, and we’ll bring you the latest changes and predictions that could affect your money.