The Bank of England’s rate-setting body voted to cut the base rate by 0.25% to 4.5% against signs that the UK economy is struggling.
The nine-strong Monetary Policy Committee voted by a majority of 7–2 to reduce Bank rate by 0.25%.
But two members, Swati Dhingra and Catherine Mann, thought more help was needed and voted for a 0.5% cut.
The MPC minutes concluded, “there has been sufficient progress on disinflation in domestic prices and wages to reduce Bank rate”.
But much of the rest of its report makes grim reading.
It forecasts inflation will rise from its current 2.5% level to 3.7% by the third quarter of next year, driven by higher global energy costs and other regulated price changes.
The report adds: “Domestic inflationary pressures are moderating, but they remain somewhat elevated, and some indicators have eased more slowly than expected.”
On growth, it says: “Gross domestic product growth has been weaker than expected at the time of the November Monetary Policy Report, and indicators of business and consumer confidence have declined. Gross domestic product growth is expected to pick up from the middle of this year.”
It points out that the labour market “has continued to ease and is judged to be broadly in balance,” but that productivity “has been weaker than previously estimated”.
This led the Bank to downgrade its 2025 growth forecasts made in November from 1.5% to 0.75%.
SPF Private Clients chief executive Mark Harris says: “The Bank of England’s decision to cut the base rate to 4.5% comes as no real surprise, given the drop in inflation to 2.5% in the year to December.
“The question is when the next rate cut will come, with markets pricing in three reductions this year.
“Much attention will be paid to the voting pattern of the committee to see how fast, and far, further rate reductions will occur. These will boost the housing market, improving affordability and making budgeting easier.”
Santander UK chief economist Frances Haque predicts a further three base rate cuts this year, with the next coming in May.
Haque says “The cut to the Bank of England base rate will come as some light relief to those homeowners with fixed rate mortgages maturing this year, and should see a boost to overall household confidence, following a period of decline at the end of 2024.
“While this is a positive story overall, with rates sitting lower than they were two years ago, borrowers coming off five-year fixed terms will still be moving to rates significantly higher than their current rate.
“With house prices set to continue to rise, albeit at a slower pace, and mortgage approvals remaining strong, spurred on by the upcoming change to stamp duty, we are however looking towards a more buoyant housing market as we progress through the year.”
MT Finance director of mortgages at specialist Marylen Edwards points out: “The MPC’s decision to cut the base rate signals the continuation of an easing cycle, reflecting growing confidence in the Bank of England’s progress on controlling inflation while acknowledging the need to support economic growth.
“The timing of this cut could be particularly significant for the property market, with spring approaching – traditionally a busier period for property transactions.”
Quilter financial planner Holly Tomlinson says: “Ahead of the Bank of England’s decision, lenders were already making changes. Lenders have proactively reduced rates on various mortgage products in anticipation of the Bank of England’s decision.
“Now that the rate cut is in place, homeowners on variable or tracker mortgages should start noticing lower monthly payments too.
“We may see some lenders introduce more competitive fixed-rate deals in the coming weeks but typically most new deals have already priced in today’s cut.”
