The Bank of England (BoE) has cut interest rates from 4.75% to 4.5% in its first decision on the base rate in 2025.

It marks the third cut to the base rate since the central bank started to bring interest rates down last August from a peak of 5.25%.

At its latest meeting, the BoE’s Monetary Policy Committee (MPC) voted by a majority of seven to two to reduce the base rate by 0.25 percentage points, to 4.5%. Two MPC members were in favour of a 0.5 percentage point reduction, to 4.25%.

In the MPC’s report published today, it noted that CPI inflation was 2.5% in Q4 2024, and that there had been “sufficient progress on disinflation” in domestic prices and wages to bring the base rate down.

The latest decision by the BoE to reduce rates has followed two recent cuts, in August and November, which were the first reductions since the onset of the COVID pandemic in March 2020.

Prior to these cuts, the BoE had increased its base rate from a record low of 0.1% during the pandemic at 14 successive MPC meetings between December 2021 and August 2023, which took interest rates to their recent 5.25% peak.

Reacting to the latest cut, head of mortgages and protection at Just Mortgages, Ben Allkins, commented: “Compared to the previous cut, we have to hope swap rates react positively too and move as we’d expect. With a little bit of breathing space and financial year-end approaching for many lenders, it may be enough for some to take another look at their pricing.

“Brokers hearing this today need to mobilise and get out among their clients and their community to share this good news. We’ve seen already this year that appetite is certainly there. We now need to demonstrate the opportunities that exist as they try to navigate the market.”

Managing director, residential mortgages and second charges at West One Loans, Marie Grundy, added: “Prioritising growth over inflation, the MPC’s move bodes well for the housing market. Markets are betting on between three and four more cuts this year, and a 3.75% rate by the year-end seems likely. If the economy continues to stagnate, the MPC may need to act more aggressively, but whilst also keeping inflation under wraps.

“For borrowers, news of further rate cuts will undoubtedly be welcomed. Whether fast or slow, they’ll likely be in a stronger position by year-end than they were at the start.”

The BoE’s next base rate announcement is due on 20 March.

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