Who benefits from the latest Bank of England interest rate cut?

As widely expected, the Bank of England cut the interest rate by 0.25% last week.  The committee wasn't unanimous - it was Andrew Bailey, the governor, that changed his vote so the committee was 5 to 4 in favour of a rate cut.  Although the UK economy is stalling, inflation is still way in excess of the 2% target so it looks like the cut was largely a political move rather than an economic one.

So who benefits from this rate cut?  Who are the losers?

It's probably easier to start with who are the losers.

There's £1.98 TRILLION in UK savings accounts and the majority of these will be earning 0.25% less interest. 

There's about £360 BILLION in cash ISA accounts and similarly these will be earning 0.25% less interest.

So the cut has wiped out £4.95 BILLION in interest payments - lets assume the majority of these pay 20% tax on savings interest, that's a reduction in £990 MILLION in tax paid to Rachel.

Similarly the rate cut has reduced interest payments in Cash ISAs by £900 MILLION. Generally there's no tax paid on ISAs so Rachel hasn't won or lost from this move.

So in theory home owners with mortgages are the winners.  However around 12% of mortgages are on variable rate mortgages (it may have fallen closer to 5% since 2024, 95% were fixed rate) and the rest are on fixed rate mortgages that won't benefit. 

There is £1.7 TRILLION of mortgage debt.  Sadly there's not a nice convenient breakdown of where this debt is allocated so I'll assume that 12% of it is variable mortgages.  So that equates to £204 BILLION of debt and therefore a potential reduction in £510 MILLION in interest payments - that assumes the lenders will pass on the rate cut which is not guaranteed unless the mortgage is a tracker.

Pareto suggests that 80% of these will benefit from the reduction within the next 30 days.

There are 1.8 Million fixed rate mortgages set to mature in 2026.  There are 8.5 Million home mortgages and around 2  Million buy-to-let mortgages.  The number of buy-to-let mortgages is falling - there are approximately 93,000 landlords which have exited the market in 2025.

So let's assume that there's an equal distribution so £1.7 TRILLION across 10.5 Million mortgagees equals an average mortgage of £162k.  So 1.8 Million mortgagees could save £405 per year when their fixed rate mortgage expires in 2026.  

Approximately 20% of these are rental properties so subject to taxation.  Both basic rate tax payers and 40% tax payers both  get the same 20% tax relief.  So landlords with a mortgages will be £324 per year better off after tax and Rachel will get £81 extra in tax (£29 Million in extra tax overall for Rachel).  

 So what about business debt?  There's estimated to be £486 BILLION in business lending debt. £62 BILLION of that is to Small businesses.

Business debt interest rates tends to be high - typically in the range of 8 - 11% interest rate.  Figures are hard to come by but it appears there are around 1.6 MILLION business borrowing this money.  Pareto suggests that 80% of the debt is borrowed by 20% of the companies. So 320,000 companies have average debts of £1.2M and 1.28 Million companies have debts of £76k. 

So let's assume 50% are variable rate and 50% are fixed interest and therefore not maturing until some future date. So 640k companies will see a saving of £189 per year in interest payments and 64,000 companies will save £3,037 in interest. 

It's clear from all of this that home owners are not making big savings,  businesses are not making big savings,  Rachel is getting less tax overall.  Savers are losing out, so who are the winners?  Is this all little more than a PR exercise to give the impression steps are being taken to make things better?

I struggle to see how this is really going to stimulate the economy on any meaningful basis unless people and businesses are on a knife edge and saving £400 per year will ensure their survival.

I suspect it's the banks are the real winners from all of this.