The Bank of England (BoE) has reduced its main interest rate by 0.25 percentage points to 4.5%, a move aimed at balancing economic growth with inflation control. However, while lower interest rates often bring relief to borrowers, this decision raises questions about its broader impact—especially for the majority of Britons who do not have mortgages.

The BoE’s Justification

The BoE’s decision comes amid concerns over higher short-term inflation forecasts and weaker-than-expected economic growth. The central bank now expects inflation to peak at 3.7% in the third quarter of 2025 before gradually declining to its 2% target by late 2027. Economic growth projections for 2025 have also been halved to just 0.75%, prompting the BoE to act in an effort to stimulate economic activity.

Who Actually Benefits?

The most immediate beneficiaries of a rate cut are mortgage holders with variable or tracker mortgages. For this group—roughly a third of Britons—the reduction in borrowing costs could provide some financial relief. However, for the vast majority of the population, the impact is either negligible or negative.

• Savers Lose Out: Those with savings accounts will see lower returns, reducing their income in real terms. This is particularly harmful to retirees and cautious savers who rely on interest earnings.
• Fixed-Rate Mortgage Holders See No Change: A significant portion of homeowners are on fixed-rate mortgages, meaning they won’t see any immediate benefit from lower rates.
• Encouraging Easy Credit?: Lower interest rates make borrowing cheaper, but they also open the door to riskier lending. Some critics argue that this policy enables excessive borrowing by individuals and businesses that may struggle to repay debts in the future.

A Fragile Balancing Act

The BoE is walking a fine line between stimulating economic growth and ensuring financial stability. While lower rates can encourage spending and investment, they can also contribute to asset bubbles and unsustainable debt accumulation. With inflation still running above target, there’s a risk that easier credit could fuel further price increases rather than providing meaningful economic relief.

As the UK economy navigates uncertain waters, the key question remains: is this rate cut truly a solution for the majority, or is it merely a boost for a select few—while others bear the cost?