Bank of England cuts base rate to 4.25%
At noon on the 8th May 2025, the Bank of England’s Monetary Policy Committee (MPC) announced that it’s cutting its base rate of interest to 4.25% — the second cut this year. While this move was widely anticipated, the decision reflects a need to confront growing economic pressures, including inflation and uncertain global trade dynamics caused by Trump’s tariffs. But what does this mean for remortgagers, first-time buyers, and home movers? Let's break it down.
Worried about what mortgage rate you’ll get?
Take the guesswork out of mortgage affordability. See what rates you could be offered without applying with a free, personalised Tembo plan.
Why has the base rate been cut?
The base rate is the Bank of England's primary tool to keep the rate of inflation at, or close to, its 2% target. Inflation dropped more than expected in March to 2.6%, giving the Bank the wiggle room it needed to decide on a rate cut, reducing the base rate by 0.25% from 4.5% to 4.25%. This is the fourth reduction since last year's peak of 5.25%, and the second cut this year so far.
But some economists - including the former Bank of England deputy governor - have argued a bigger cut is needed.
Could we see more base rate cuts?
The Bank of England will be paying close attention to key metrics to assess the health of the UK economy to decide if and when another rate cut can happen. This is the first MPC vote since Trump's “liberation day” tariff policy announcement sent shockwaves through the world economy. But the ripple effects might just be starting to kick in…
Some are warning that Trump's trade battles could lead to a significant slowdown in trade, stoke inflation AND heighten the risk of a recession. In fact the Bank's governor, Andrew Bailey, warned last month that the UK economy faced a “growth shock” as a result of Trump’s policies. As a result, the International Monetary Fund (IMF) downgraded its 2025 growth forecast for the UK from 1.6% before the tariffs were announced to 1.1%!
While it may sound like Trump’s tariffs only spell disaster, there could be a silver lining…
Analysts think the current high interest rates, combined with economic worries from Trump’s tariffs, call for more efforts to bring borrowing costs down to give the economy a much-needed boost.
This is why before Trump's “liberation day” only two base rate cuts were expected before the end of the year. Now, they are expecting at least three and potentially even a fourth! Right now, the base rate is forecasted to end this year at 3.5%.
However, the Bank has made it clear that it wants to see sustained lower inflation before considering a rate cut, which doesn't look anytime soon.
Inflation dropped more than expected in March to 2.6%, but the job market is showing signs of slowing down as businesses deal with higher taxes and low consumer confidence. Inflation is expected to hit a new high of 3.7% this summer, driven by rising energy and food prices – nearly double the Bank of England's 2% target!
What does the base rate cut mean for mortgage rates?
While financial markets have priced in more cuts this year, lenders are likely to be cautious and reduce rates gradually. And always keep in mind that future base rate cuts will be factored into fixed-rate mortgage deals before a cut is announced.
This is why the best priced five-year fixed rate mortgages are just below 3.9%*, rather than above the base rate at 4.25%. But in recent weeks, we have seen a mini price war emerge amongst lenders, some big names cutting rates as low as 3.83%*. So as long as we don’t get any inflation curveballs, mortgage rates should continue to track downwards, ending 2025 at an average of 3.63%.
If you’re hoping to buy a home soon, or your current fixed-rate mortgage is coming to an end and you need to remortgage soon, remember that this is only a prediction. While lower rates could mean better options, it's not guaranteed that rates will drop. So holding out for more rate drops could be risky!
If you’re on a tracker mortgage deal, you will see an immediate drop in your monthly repayments after today’s announcement.
If you’re on your lender’s Standard Variable Rate (SVR), you could see your monthly payments drop, although this isn’t guaranteed as your lender may change this rate at any time, not just when there’s a base rate cut.
Instead of holding out for more cuts or burying your head in the sand, see what rates you could be offered today without applying by creating a free Tembo plan. Plus, if you lock in a deal today through Tembo and rates do fall, you can use our free rate-checking service! Simply ask your dedicated mortgage advisor to reapply for you at no extra cost! It’s part of our commitment to maximising your affordability.
See what rate you could get without applying
Create a Tembo plan to see all your remortgage or buying options from over 20,000 mortgage products and over 100 lenders. It’s free, only takes 10 minutes and there’s no credit check involved!
*Based on Tembo's lender panel, the lowest 5-year fixed-rate mortgage deal is 3.83%, based on a 60% LTV or lower. Rates accurate 8th May 2025, subject to change.
