Bank of England Cuts Interest Rate to 4.25%

The Bank of England has reduced its base interest rate by 0.25 percentage points to 4.25%, marking the fourth cut since August 2024. This decision reflects ongoing efforts to support the UK economy amid global trade tensions and a slowdown in growth.

Impact on savers

Lower interest rates typically lead to reduced returns on savings accounts. According to the Financial Times, currently around £280 billion is held in “zombie” accounts offering little to no interest, causing savers to miss out on potential earnings. At Schroders Personal Wealth, we recommend reviewing savings options regularly to ensure funds are placed in accounts offering competitive rates. Some providers still offer rates above 4.5%, but these may decline following the rate cut.

Opportunities for investors

While savers may face challenges, the current environment presents opportunities for investors.

Lower interest rates can have a significant impact on various financial markets. In the equities and bonds markets, lower interest rates can boost performance as borrowing costs decrease. This reduction in borrowing costs makes it cheaper for companies to finance their growth, leading to potential increases in stock prices and bond values. Investors often find these conditions favourable for investing in equities and bonds, as the lower costs can translate into the potential for higher profitability and returns. However, as with all investments, there is no guarantee and the value and the income from them can fall as well as rise.

Additionally, in a low-interest-rate environment, investors may consider diversifying their portfolios to include assets that could outperform. Diversification can help mitigate risks and take advantage of different market conditions. By including a mix of assets such as equities, bonds, property, and other investment vehicles, investors can potentially enhance their returns and protect their portfolios from volatility.

Diversified portfolios could provide a balanced approach to investing, especially when interest rates are low and traditional savings accounts offer minimal returns.

Find out more about diversification

How financial planning can help

Given the shifting economic landscape, it’s important that you reassess your financial plan to ensure it remains effective and that you’re on track to achieve your long-term goals.

We believe in regularly reviewing your plan and investment strategies with a financial adviser. Seeking professional advice can help you explore investment options that align with your financial goals as well as your willingness and ability to accept risk. At Schroders Personal Wealth our experienced advisers can provide personalised recommendations and insights, helping you make informed decisions that support your long-term financial wellbeing.

Finally, it is essential to stay informed about economic developments and central bank policies. Keeping abreast of these changes could help you make informed financial decisions and adjust your financial plan as needed. By staying updated on the latest economic trends and policy shifts, you can better navigate the financial landscape and make choices that support your financial stability and growth goals.

While the Bank of England’s rate cut may pose challenges for savers, it also opens doors for strategic investments. By proactively managing finances and seeking expert guidance, you can potentially navigate this low-interest-rate environment effectively.