Bank of England set to cut interest rates within weeks – what it means for your savings, pension and mortgage

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "The turmoil Trump has unleashed on the world has increased the odds of a May interest rate cut dramatically.

"Financial markets are currently pricing in a 95 per cent chance of a reduction on May 8, whereas before Liberation Day it was looking more like 50/50."

The economic outlook is weakening, with UK growth forecasts downgraded and pressure mounting on key sectors.

Streeter notes that while the UK initially appeared less affected by new US tariffs, the knock-on effects will be felt soon.

Although inflation remains above the Bank of England’s two per cent target, deflationary forces may soon take over, as a "flagging economy rather than stubborn inflation is more of a bugbear to beat right now.'

Lower interest rates, she adds, could help "increase business and consumer confidence and encourage more investment and spending."

What it could mean for savings

With interest rate cuts expected to begin as early as May, savers may soon see some of the most competitive deals start to disappear — especially on easy access accounts.

Mark Hicks, head of Active Savings at Hargreaves Lansdown, says the recent surge in savings rates, fuelled by end-of-tax-year competition, is already starting to reverse. "Now that the market is expecting a rate cut in May, and more later in the year, we’re seeing those rates start to drop,” he explains. "We can expect this trend to continue."

Hicks notes that easy access rates are particularly sensitive to movements in the base rate, and with further cuts expected, they’re likely to fall more sharply than fixed-rate options. "Anyone who has money they don’t need for a fixed period of a few months or longer should consider tying it up for a better rate," he advises.

With markets anticipating around three more cuts in 2025, Hicks warns that fixed-rate deals above 4.5 per cent "may not be around for much longer."

What it could mean for pensions

After a major comeback driven by higher interest rates, annuities could see a dip in value if the Bank of England begins cutting rates this year. But experts say that doesn’t mean you should rush into a decision.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown said: "Annuities have enjoyed a huge revival in recent years, off the back of increased interest rates, The prospect of cuts on the horizon means that we may well see incomes start to fall back."

However, Morrissey notes that rates remain far higher than the ultra-low levels seen in the past. She added: "It’s fair to say that this isn’t a given and we are a long way away from the mega low interest rates that we had in recent years."

She adds that annuities still offer "good value" and urges people not to feel rushed, stating: "You also don’t have to lock all your pension into an annuity at once.

"Instead, you can annuitise in stages… and potentially secure an even higher income through an enhanced annuity."

What it could mean for mortgages

Mortgage rates are gradually falling as markets price in a May rate cut and further reductions later this year.

The average two-year fix has already dropped to 5.22 per cent, from 5.32 per cent at the start of the month.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: "Mortgage rates below four per cent are spreading, as the market is pricing in a first cut in May, and then more cuts as we go through 2025."

But she warns that global uncertainty could still shift the outlook stating: "Another seismic shift from the US could force a reappraisal of the likely path of rates."

While falling rates offer some relief, many homeowners are still feeling the pinch. She said: "Those who have remortgaged since the end of 2022 spend an average of £157 more a month than those who haven’t. So while a drop in rates is welcome, borrowers aren’t out of the woods just yet."