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Post updated: June 4th, 2025
The future path of UK interest rates has become more uncertain due to Donald Trump’s tariffs war, the Bank of England governor Andrew Bailey has warned.
When asked about the impact of the US president’s chaotic trade policy on the Bank’s policymaking by MPs on the Treasury Select Committee on 3 June, he said, ‘the path remains downwards, but how far and how quickly is now shrouded in a lot more uncertainty’, adding that a ‘gradual and careful’ approach to rate-cutting remained his ‘guiding light’.
Speaking in the aftermath of figures showing inflation jumped to 3.5% in April, Mr Bailey also said he continued to expect wage growth in the UK to decline in upcoming months, suggesting the Bank’s Monetary Policy Committee may feel more confident to cut rates.
‘I actually don’t think we’ve seen particular surprises in inflation outcomes relative to what we were expecting,’ said Governor Andrew Bailey. ‘The key question for me is we’ve got this view which is that we will see pay coming down this year. That’s going to be a crucial judgment going forward.’
While mortgage holders welcomed the Bank of England’s decision to cut interest rates from 4.5% to 4.25% last month the chance of another interest rates cut this month is unlikely when the bank’s Monetary Policy Committee’s next meets on 19 June, experts warn.
While there’s a general consensus that interest rates are expected to be cut further this year, there’s differing opinion on when this will happen and how far rates will go:
The Bank of England cut interest rates in May from 4.5% to 4.25%. This followed interest rates cuts in February 2025, November 2024 and August 2024, when the base rate was first cut from 5.25%.
However, the Bank’s nine-person Monetary Policy Committee was divided. While five members voted for the cut, two wanted a bigger cut to 4% while two voted for the rate to be held at 4.5%.
The Bank of England’s base rate acts as a benchmark for the cost of borrowing money. As a general rule, when interest rates increase, so does the cost of borrowing on mortgages and other types of borrowing.
One major reason why the Bank moves rates up and down to help control inflation. When inflation is high, the bank may increase interest rates to try to bring it down by encouraging people to spend less and reduce demand. And once inflation is at or near its target, the Bank may hold or cut interest rates.
Official figures released in May 2025 showed that the UK inflation rate increased by more than expected to 3.5% in the 12 months to April. This is 1.5 percentage points higher than the Bank’s inflation target of 2%.
The next Bank of England’s Monetary Policy Committee meeting is on 19 June 2025. Its subsequent meetings are on 7 August 2025 and 18 September 2025. The Bank of England publishes a calendar of future committee meeting dates here.
Falling interest rates usually means mortgage rates fall too. Stay up to date with our guide to Mortgage rate predictions.
However, how changes in interest rates affect your mortgage depend on your circumstances:
Other types of borrowing are affected in a similar way. If interest rates go up, borrowing of any type generally gets more expensive, while when interest rates are cut, borrowing generally gets cheaper. However, this is in general terms as the amount you’ll pay on things like credit cards and loans will depends on a number of factors including your credit history.
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