Bank of England Cuts Interest Rates to 4.5%

The Bank of England has cut the base rate from 4.75% to 4.5% following the latest meeting of the Monetary Policy Committee (MPC).

It’s the first rate cut of 2025 and follows two cuts in 2024, which saw interest rates fall from a high of 5.25%. The last cut to the base rate was in November.

Members of the MPC voted by 7 to 2 to reduce, with seven members opting to reduce rates to 4.5%, while two wanted cuts to go further to 4.25%.

The Governor of the Bank of England, Andrew Bailey, stated: “It will be welcome news to many that we have been able to cut interest rates again today. We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.”

While the bank cut the base rate, they were less optimistic about the UK economy’s prospects for growth in 2025. The Bank revised its forecast, with the economy now expected to grow by 0.75% this year rather than the 1.5% previously forecast.

This is due to expected higher energy prices, which could lead to inflation rising again and peaking at around 4% in the autumn. There’s also the uncertainty around tariffs potentially being imposed on the UK by the United States following the return of Donald Trump to the White House.

However, the Bank expects the economy to surpass its previous forecasts for 2026 and 2027. They now expect the economy to grow by 1.5% in both of those years, up from 1.25%.

The Chancellor, Rachel Reeves, welcomed the rate cuts. She stated the rate cut will “help to ease the cost of living pressures felt by families across the country and making it easier for businesses to borrow or grow. However, I am still not satisfied with the growth rate. Our promise in our Plan for Change is to go further and faster to kickstart economic growth to put more money in working people’s pockets. That’s why we are taking on the blockers to get Britain building again, ripping up unnecessary regulatory barriers and investing in our country to rebuild roads, rail and vital infrastructure.”

The Shadow Chancellor, Mel Stride, also welcomed the Bank’s decision but was scathing about the Labour Government’s policies, in particular the Autumn Budget, which saw tax rises of £40 billion. He stated: “Today’s cut in interest rates will be welcome news for families and businesses who have been hit hard by Labour’s appalling mismanagement. But the Bank of England say growth is weaker than expected, confidence is falling, and Labour’s Budget is fuelling inflation.”

How will the rate cut affect mortgage holders?

Most homeowners will welcome the news of a fall in interest rates, especially those on a tracker mortgage who will now see a fall in their monthly repayments following the decision.

Those with variable-rate mortgages will need to wait to see if their lender matches the fall in the base rate to see if their mortgage rate will be reduced.

Anyone on a fixed-rate mortgage will continue to pay the same rate they have fixed until the end of their term. However, lenders may decide to reprice deals following the base rate cut, which could mean a lower rate for those looking to remortgage soon.

How will the rate cut affect prospective buyers?

The Bank’s decision will be welcome news for those looking to get onto the property ladder. If you’re a first-time buyer, it’s likely you might find cheaper deals in the coming weeks as lenders react to the Bank’s decision, which should mean you will pay less each month than you would have if you took out a mortgage in the past few months.

Mortgage rates are still high compared to the start of the decade, but three cuts since August signal that the peak may have passed and that rates could continue to drop.

However, given the Bank expects inflation to rise again this year, further cuts to the base rate might be postponed until later in the year.

Whether it’s the right time to get a mortgage will depend on each applicant’s circumstances, but saving for a decent deposit, comparing deals across the market or getting in touch with a broker are good options for those considering taking out a mortgage in the immediate future.