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On February 6, 2025, the Bank of England (BoE) announced a 0.25% reduction in the base rate, bringing it down to 4.5%—the lowest level since June 2023. This marks the third consecutive rate cut since November 2024, as the central bank aims to stimulate economic growth amid lowered inflation and revised GDP forecasts. Here’s a breakdown of what this decision means for mortgages, savings, and the broader economy.

Why Did the Bank of England Cut Rates?

The BoE’s Monetary Policy Committee (MPC) voted 7-2 in favor of the cut, citing:
Falling inflation: Inflation dropped to 2.5% in December 2024, nearing the BoE’s 2% target.
Economic slowdown: The UK’s 2025 growth forecast was halved to 0.75%, down from 1.5%, signaling stagnation risks.
Global pressures: Rising energy costs and wage growth moderation also influenced the decision.

Impact on Mortgages

Variable-Rate Mortgages: Borrowers on tracker or standard variable rate (SVR) deals will see immediate reductions in monthly payments. For example, a £200,000 mortgage could save around £30–£40 per month.
Fixed-Rate Mortgages: Over 80% of UK homeowners are on fixed-rate deals, meaning no immediate change. However, those remortgaging in 2025 may secure lower rates as lenders adjust to the base rate cut.
Future Predictions: Experts anticipate further rate cuts in 2025, potentially bringing the base rate below 4% by year-end. This could lead to more competitive fixed-rate offers later in 2025.
Homeowners can “lock in fixed rates sooner rather than later,” as global market volatility could slow lender adjustments.

Savings Rates: What to Expect

While lower rates ease borrowing costs, savers face challenges:
Easy-Access Accounts: Rates are expected to drop sharply. For instance, top-paying accounts like Trading 212’s 5.16% Cash ISA may reduce offers soon.
Fixed-Rate Savings: Existing fixed-term accounts remain unaffected, but new deals will likely offer lower returns. Vida Savings’ 4.77% one-year fix is a current standout.
Inflation Hedge: With inflation projected to rise to 3.7% in late 2025, experts urge savers to prioritize accounts beating inflation or consider tax-free ISAs.

Inflation and Economic Outlook

The BoE warns of a temporary inflation rebound in 2025 due to energy costs and regulated price hikes, peaking at 3.7% before stabilizing near 2% in 2026 311. Economists remain divided:
Pantheon Macroeconomics predicts a January 2025 inflation reading of 2.8%.
Deutsche Bank forecasts a 2.9% spike in early 2026.
Despite uncertainties, the BoE’s rate cuts aim to balance inflation control with economic growth support.

Will Rates Fall Further in 2025?

Analysts expect 2–3 additional cuts in 2025:
Oxford Economics: 4–5 cuts, potentially bringing rates below 4%.
S&P Global: 3 cuts total, ending at 4%.
Market Predictions: Rates could hit 3.75% by December 2025.

Key Takeaways for Households

Mortgage Holders: Review your deal—tracker/SVR borrowers benefit now; fixed-rate borrowers should plan for future remortgaging.
Savers: Act fast to secure high-rate accounts before cuts take effect.
Economy Watch: Monitor inflation trends and global energy markets, which could sway future BoE decisions.

Final Thoughts

The BoE’s rate cut underscores its cautious strategy to revive growth without reigniting inflation. While borrowers gain short-term relief, savers must stay proactive.