Savers in the UK are facing the prospect of their money losing value against inflation for the first time in nearly two years, after major banks cut interest rates in response to last week’s Bank of England (BoE) base rate reduction.
According to data from Moneyfacts, more than 20 savings providers—including NatWest, Chase, and Santander—have lowered their savings rates following the BoE’s decision on August 7 to reduce the base rate by 0.25 percentage points to 4%.
Inflation Threatens to Outpace Savings Returns
With inflation climbing to an 18-month high of 3.6% in June and forecast to peak at 4% in September, experts warn that many savers will struggle to keep pace.
“If inflation reaches 4% as predicted, many savers won’t actually be beating that on a variable rate,” said Rachel Springall of Moneyfacts. “It shows that real-term savings are at risk of being eroded.”
Moneyfacts data shows that the last time average savings rates fell below the consumer price index (CPI) was in October 2023. The figures cover easy access accounts, notice accounts, cash ISAs, lifetime ISAs, junior ISAs, and children’s savings accounts.
Banks Move Quickly to Cut Rates
Unlike the slow pace seen when raising rates in 2023—when banks were criticised by then-Chancellor Jeremy Hunt for delaying increases—banks acted swiftly to reduce them this time.
Between August 7 and August 12, Atom Bank cut its Instant Saver Reward account from 4.51% to 3.93%, a 0.58 percentage point drop. OakNorth Bank reduced its 20-day notice account by 0.34 points to 3.78%. Skipton lowered its Cash ISA Saver and Children’s Trust Saver by 0.5% each.
By contrast, the UK’s largest banks took a more cautious approach. Santander cut its Junior ISA by 0.10 points to 2.7%, NatWest trimmed its cash ISA by 0.25%, and its Help to Buy ISA by 0.20%.
Borrowers Benefit, But Savers Urged to Stay Alert
While mortgage borrowers welcomed the cut, the benefits will mainly be felt by those on variable-rate deals directly tracking the base rate.
The Bank of England’s latest Monetary Policy Report now expects inflation to peak at 4% in September—double its 2% target and higher than the 3.8% projection made in May. Despite high inflation, weak growth and labour market concerns pushed the Monetary Policy Committee to act, though the decision was described by Governor Andrew Bailey as “finely balanced.”
Springall advised savers to monitor accounts closely: “Customers could move their account now, only to find that the new provider also cuts rates soon after. For those on variable-rate deals, the best approach is to keep a close eye on the market.”
Meanwhile, the average two-year mortgage rate dropped to 4.99%, which analysts described as a “benchmark” moment for homeowners, as lenders compete more aggressively.
The BoE has now cut rates five times since August last year, but analysts say further reductions remain uncertain.
