The Bank of England has announced a 0.25% reduction in the Base Rate, bringing it to 4.5%, in its first decision of the year. This follows a period where the rate was held at 4.75% in December, after two cuts in 2024.
The Bank’s Monetary Policy Committee (MPC) meets every six weeks to determine interest rates, aiming to maintain inflation at the government’s target of 2% and ensure overall economic stability. Recent data indicates that inflation stood at 2.5% in the year to December, slightly above the target.
Financial markets had widely anticipated this rate cut, expressing concerns that maintaining higher rates could negatively impact economic growth, affecting both businesses and households. The MPC’s decision reflects these considerations, with seven members voting for the 0.25% reduction, while two members advocated for a larger cut to 4.25%.
Despite the rate cut, the Bank has halved its growth forecast for 2025 from 1.5% to 0.75% and warned that inflation could peak at 3.7% by autumn, nearly double the government’s target. Governor Andrew Bailey indicated that more rate cuts could follow to support the weak economy.
In recent weeks, mortgage rates in the UK have experienced a downward trend, providing some relief to borrowers. Following the Bank of England’s decision to cut the base interest rate from 4.75% to 4.5%, several major lenders, including Barclays, HSBC, and Nationwide, have reduced their mortgage rates. For instance, Barclays decreased its two-year fixed rate from 5.23% to 4.99%, potentially saving borrowers significant amounts on their mortgages.
As of early February 2025, the average rate for a two-year fixed mortgage has fallen to 5.5%, while the average five-year fixed rate stands at 5.22%. These reductions are attributed to lenders responding to the Bank of England’s rate cut and increased competition in the mortgage market.
It’s important to note that while these rate cuts are beneficial for new borrowers and those looking to remortgage, individuals with existing fixed-rate mortgages will not see immediate changes in their repayments. However, customers with tracker mortgages or those on standard variable rates (SVR) may benefit from these reductions.
Overall, the recent trend indicates a more favourable environment for mortgage borrowers, with increased lender competition and lower rates following the Bank of England’s interest rate cut.
If you would like any advice on mortgages then please contact our offices where we can put you in touch with our independent mortgage broker.