Interest rates have been slashed to 4.5% from 4.75% – the lowest base rate in almost two years.
Today, Thursday 6th February, the Bank of England’s Monetary Policy Committee (MPC) voted to cut interest rates to 4.5%, with two members encouraging an even bigger reduction.
The decision to cut interest rates is the third reduction seen since the Bank began bringing them down in August last year – when they reached a peak of 5.25%.
A vast amount of people have welcomed the decision, especially homeowners who may start seeing cuts to their monthly remortgage payments. For example, on a typical London mortgage of £300,000 repayments will fall around £43 a month from £1,710 to £1,667.
Meanwhile, small business owners will also feel the benefits as they have been actively struggling with high interest rates since the Bank first decided to up them at the end of 2021.
Commenting on the news, Pierre Roke, analyst at Validus Risk Management, said: ‘The Bank of England expectedly lowered rates by 25 basis points, with an 7-2 vote in favour of the decision. Among the nine members, two (including the expected hawk Catherine Mann) supported a larger 50 basis point cut, sending a strong dovish signal to the market and pushing cable sharply lower.
‘Recent GDP data recorded 0% growth; however inflation is forecast to remain above target throughout 2025, indicating the UK is at threat of stagflation. Despite this, the bank’s decision comes as no surprise to the market as political pressure mounts to support the economy after Rachael Reeves’ controversial budget.
‘The attention now turns to Andrew Bailey, and his guidance regarding the risks posed by Trump and how to navigate continuing uncertainties. While the UK has managed to avoid the proposed tariffs so far, Bailey will likely face heightened scrutiny and tough questions about the president, especially given they have been in a media blackout period during his most recent flurry of announcements.’
On the topic of slow growth, William Marsters, senior sales trader at UK’s Saxo, added: ‘Risk of the UK’s stagnant growth and loosening labour market seems to have been front of mind for at least some of the Bank’s MPC after two members were in favour of a larger cut.
‘This added a dovish spin to today’s meeting and has resulted in a weaker sterling. 10-year Gilt yields also dropped but have since bounced. The upward revision in inflation forecasts adds tension to further decisions as the central bank balances its mandate and the government struggles to achieve growth.’
To give context, the Bank of England downgraded its forecasts for growth projecting that GDP fell 0.1% in the fourth quarter of 2024 and will only rise by a mere 0.1% in the first quarter of this year.
Despite this negative outlook, Daniel Austin, CEO and co-founder of ASK Partners, remains optimistic.
‘The Bank of England’s decision to lower interest rates to 4.5% marks a pivotal moment for the UK real estate market. While this move may provide some relief for borrowers, the broader impact will depend on how quickly lenders adjust mortgage rates and how sustained the rate-cutting cycle becomes,’ Daniel said. ‘For homeowners and prospective buyers, lower rates should, in theory, make mortgages more affordable. However, the current market dynamics, where fixed mortgage rates have remained elevated despite previous signs of easing, suggest that any immediate impact may be muted.
‘That said, a more stable rate environment could help restore buyer confidence, particularly among those who had been waiting for clarity before entering the market.
‘For investors and developers, the trajectory of rate cuts will be crucial. With inflation now closer to the Bank’s 2% target, there is renewed optimism that financing conditions will improve, unlocking capital for new developments. Demand remains strong, particularly in sectors like co-living and build-to-rent, where supply constraints continue to drive investor interest.’
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