Ahead of today’s meeting of the Bank's Monetary Policy Committee (MPC), commentators had been split over whether we’d see another base rate cut - with some suggesting the Bank would hold rates, and others predicting a bolder move.
But it’s now been announced that the Bank of England has cut the base rate by 0.25%, bringing it down to 4.25% - its lowest level in two years.
The Bank's Monetary Policy Committee (MPC) were split 5-2-2 on the decision, with two voting in favour of a larger reduction and two voting for no change.
The base rate, also known as the 'bank rate' or the 'interest rate', is important because it influences the rates that lenders charge their borrowers for things like mortgages.
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Why has the base rate been cut?
The Bank has been using the base rate as a way of taming inflation, which hit a recent peak of 11.1% in October 2022.
The Bank increased the base rate from 0.1% in late 2021, to 5.25% in August 2023. It then cut the rate twice last year, first in August, again in November and then again in February this year.
The good news is that inflation has recently dropped. The Consumer Prices Index (CPI), a key measure of inflation, stood at 2.6% in the year to March. While that’s still above the Bank’s 2% target, it’s edged down from 2.8% in the year to February.
In its Monetary Policy Report today, the Bank said that inflation is “following a bumpy path”.
It explained: “Inflation will increase temporarily this year before falling back to the 2% target. This is partly because of increases in energy prices, and increases in some regulated prices such as water bills.
"Inflation could stay higher than expected if the prices of some services continue to rise quite quickly. On the other hand, demand in the economy could be weaker than expected, which would lower prices."
How does this impact interest rate predictions for 2025?
The report took a positive yet cautious approach to future base rate changes, stating "If things evolve as expected, we expect to reduce interest rates further."
"We will judge carefully how far and how fast to cut interest rates. The best contribution we can make to support economic growth and people’s prosperity is to make sure we have low and stable inflation."
What does the base rate cut mean for mortgage rates?
If you’re planning to get a new mortgage soon, you’re likely to see the lower base rate factored into new deals. This could make moving more affordable for you.
Whether you’re moving, buying your first home or your fixed rate is ending, it’s worth seeing if any lower rates are now available to you.
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If you're on a tracker mortgage, you'll also see an almost immediate impact on your interest rate.
Richard Donnell, Executive Director of Zoopla, said: "Today's base rate cut is welcome news for people looking to sell and buy homes in 2025. It will provide a boost to market sentiment and filter slowly into lower mortgage rates as the cost of fixed-rate mortgages already reflects future cuts in the base rate.
"This, alongside reforms to mortgage regulations announced recently, will help boost buying power. This is important at a time when there is a large number of homes for sale across the UK - the average agent has 34 homes for sale.
"Improved buyer confidence will support sales and help more people realise their moving ambitions in the year ahead."
Reacting to the base rate change, Nathan Emerson, CEO of Propertymark, commented: “Today’s news will no doubt be extremely welcome for many, especially given current economic uncertainties. International bodies have recently stated they expect interest rates to fall in the UK as the year progresses. Overall, we hope to see interest rates further continue their downward trajectory over the course of 2025.
“The UK housing market has recently been buoyed by stamp duty threshold changes leading up to the start of April, and with the busier spring and summer months now here, this base rate reduction should attract even more buyers and sellers to the market and provide greater affordability.
“Housing is a central part of the UK economy, and we now hope to see considering the UK government and the devolved administrations have shown a keen focus on housing growth, is that they look ahead to achieving their individual housebuilding targets to meet growing demand.”
How could this impact the housing market more broadly?
Our latest House Price Index report points to more sellers returning to the market - with 15% more homes listed for sale in the last month compared to a year ago - coupled with modest house price growth of 1.6% over the past year.
And today’s base rate decision has the potential to boost confidence and improve affordability, paving the way for more moves across the housing market.