When will UK interest rates fall further? Latest Bank of England predictions

Economists think the Bank of England will cut interest rates to 4% on 7 August, when it announces the outcome of its next Monetary Policy Committee (MPC) meeting.

It comes after the Bank was more divided than expected in June, voting to hold interest rates at 4.25% by a 6-3 majority. Dave Ramsden unexpectedly joined Swati Dhingra and Alan Taylor in calling for a faster pace of monetary policy easing.

Ramsden seems to have been influenced by signs that the labour market is cooling. Although wage growth remains high, it slowed to 5.2% annually between February and April, down from 5.6% previously.

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The unemployment rate also increased to 4.6% over this period, the highest level in almost four years, while the number of job vacancies dropped by 63,000 over the quarter. ONS survey data suggests some firms are not recruiting new workers or replacing those who have left as business confidence weakens.

Economic growth has also become more challenged, with GDP slumping by 0.3% in April as higher business taxes and Donald Trump’s tariffs took their toll.

This could prompt the Bank of England to continue its quarterly pace of rate cuts for the rest of 2025.

“We think the backdrop is becoming more favourable [for interest rate cuts],” said James Smith, UK economist at financial institution ING. “Services inflation is likely to come under further downward pressure over the coming months, while wage growth is undershooting the Bank’s May forecasts.”

Given how much the jobs market has cooled, Smith thinks wage growth will be materially lower by the end of this year. “Our base case is that the BoE cuts rates in August and November, and twice more in 2026,” he said.

How many further interest rate cuts this year?

Not all economists agree when it comes to the pace of future interest rate cuts.

Research provider Pantheon Macroeconomics expects one more cut this year, bringing the base rate to 4%. Its economists think the weak run of labour market and activity data will be short lived. November is the most likely month for a cut, in Pantheon’s view, but August is an alternative possibility.

Traders are betting on two more cuts, which aligns with ING’s forecast.

Deutsche Bank thinks we will see three more cuts, coming in August, November and December. This would bring the base rate to 3.5%. The investment bank thinks weaker pay data could allow the MPC to speed up the pace of rate cuts in the final quarter of the year.

The MPC has said it will continue its “gradual and careful” approach to interest rate cuts, which many have interpreted as quarterly cuts. Some members of the committee are more dovish, though, including external MPC member Alan Taylor.

In a speech on 2 July, Taylor called for three more rate cuts before the end of the year to protect the chances of the economy achieving a “soft landing”. This is when inflation and growth slow without the economy dipping into recession.

Taylor cited “demand weakness” and “trade disruptions” as two key threats to the economic outlook.

What do falling interest rates mean for mortgages?

A drop in interest rates generally translates into cheaper mortgages. The average two-year fixed-rate mortgage deal is currently 5.06%, while the average five-year deal is 5.05% (4 July).

This is significantly cheaper than this time two years ago. At its peak in August 2023, the average two-year rate was 6.85% and the average five-year rate was 6.37%, according to financial information site Moneyfacts.

Despite this, recent drops will bring little comfort to those coming off a relatively cheap five-year deal agreed before rates started rising in 2021. Their monthly repayments are likely to jump when they refinance.

Around 1.6 million fixed-rate deals are due to come to an end in 2025, according to trade association UK Finance.

Those who are about to come off their previous deal will be hoping for further base rate cuts, but it is worth pointing out that mortgage rates don’t always tumble in tandem with the base rate.

Fixed-rate mortgage deals are priced based on swap rates – another kind of financial instrument. These can move up and down based on other factors like inflation, bond yields and growth expectations.

“Accurate forecasting is going to be tricky, so if you are remortgaging, it pays to lock in a rate as soon as possible – a few months before your deal ends,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.

“That way, if rates rise between then and the end of your deal, you have secured a great rate, and if they fall, you can shop around for a better deal elsewhere.”

Just make sure you read the small print carefully to understand the deadlines and any fees you might lose when ditching a deal.

What do falling interest rates mean for savings?

Some of the top savings deals have disappeared over the past 18 months, first in anticipation of base rate cuts and then in response to them. Savings rates are likely to fall further over the coming months.

If you are happy to lock up your cash for a year or so, it could make sense to fix your savings to lock in higher rates for longer.

The top one-year fixed account with no minimum deposit requirement currently offers 4.55%, according to Moneyfacts. You can earn 4.16% in an equivalent ISA.

While some easy-access accounts currently offer higher rates than this, they could drop shortly after you open the account.

See our round-up of the best easy-access rates, one-year savings accounts, regular saver accounts and cash ISAs for the latest deals on cash savings.