Bank of England Lowers Base Rate to 4.25%
Friday 9 May, 2025
On 8 May 2025, the Bank of England announced a reduction in its base interest rate from 4.5% to 4.25%, marking the fourth cut since August 2024. This decision reflects the central bank's ongoing efforts to support the UK economy amidst easing inflationary pressures and increasing global economic uncertainties.
Rationale Behind the Rate Reduction
This move is aimed at bolstering economic activity in the UK, which has experienced sluggish growth in recent quarters. Inflation has decreased significantly from its peak of over 11% in 2022 to 2.6% in early 2025, approaching the Bank's 2% target.
However, the MPC anticipates a temporary rise in inflation, possibly reaching approximately 3.7% during the summer months, primarily due to increased energy prices and adjustments in regulated sectors. Despite this projected uptick, the Bank expects inflation to return to target levels in the medium term.
Global economic factors have also influenced the decision. Recent trade tensions, particularly the imposition of tariffs by the United States, have introduced additional uncertainties. These developments have the potential to dampen global demand and impact the UK's economic outlook.
Implications for UK Households and Businesses
The reduction in the base rate is expected to have several effects on consumers and businesses across the UK.
For mortgage holders with tracker or standard variable rate (SVR) mortgages, monthly payments may decrease, providing some financial relief. However, those on fixed-rate mortgages will not see immediate changes, though future fixed-rate deals might become more favourable.
Savers might experience lower returns on their deposits, as banks adjust interest rates in response to the base rate cut. Conversely, businesses could benefit from reduced borrowing costs, potentially encouraging investment and expansion.
Romany Yousab, Mortgage Adviser in Nottingham said:
"The Bank of England's decision to lower the base rate to 4.25% offers a timely opportunity for homeowners and prospective buyers to reassess their mortgage options. With borrowing costs potentially decreasing as a result of a lower base rate, individuals may find more competitive deals available, making it an opportune moment to consult with a mortgage adviser to explore potential savings."
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
