Bank of England cuts base rate by another 0.25%

In a widely anticipated move, the Bank of England's MPC has just voted to reduce the base rates to 4.50%.

Today’s 0.25% reduction and the prospect of further cuts have been warmly welcomed by estate agents and will provide a major boost for both the property industry and the wider economy.

And it will be given an even warmer welcome by Labour as it struggles to fulfil its growth pledge.

The move comes after December’s inflation figures were lower than expected, dropping from 2.6% the previous month to 2.5%.

Swap rates, which affect the cost of fixed-rate mortgages, have been falling in anticipation of the move. Five-year swaps are down from 4.12% to 3.92%, and two-year swaps from 4.26% to 4.06%.

Some big mortgage lenders, including Barclays, have already reduced their mortgage rates. Others are now likely to follow suit, which will give buyer confidence a significant lift.

This is the third cut since August 2024, but The Bank of England said they will take a "cautious" approach to further reductions. 

The Bank of England’s decision to reduce interest rates to 4.5% will come as a welcome one to the nation’s homebuyers, bringing a much-needed boost to property market sentiment, following the slight upward pressure on prices caused by increasing inflation levels in recent months.

Despite the fact that interest rates haven’t fallen at the speed we expected, we’ve seen a strong and consistent level of buyer activity sweep the property market over the last year and, with a further reduction today, we expect this to remain the case as we look to the year ahead.

Of course, mortgage rates currently remain far higher than today’s home movers have become accustomed to in recent years and so a degree of caution is advisable. However, we’re already seeing lenders react positively by reducing rates and we expect the picture to continue to improve over the course of the year where mortgage affordability is concerned.

A reduction in interest rates sends an important message to buyers and sellers, enabling them to plan ahead with more confidence. It should ease affordability and boost the housing market, as the two rate reductions in the second half of 2024 did, leading to an improvement in activity and transaction levels.

With the stamp duty concession ending in March, expected further rate reductions should give the market added momentum as the year progresses.

The bank’s base rate has been at 4.75% since November last year and how far and how fast it would fall has been the subject of much speculation. All eyes now, though, will be on Trump and what effect his policies may have on the rest of the world.

In his last meeting, Bank of England Governor Bailey, though, refused to speculate on the impact Trump’s tariffs would have on the UK’s economy, saying “Let’s wait and see”.

In the US, however, the Federal Reserve has indicated it will now cut rates at a slower pace than was originally intended.