The Bank of England Monetary Policy Committee (MPC) today (8th May 2025) announced a 25 base point reduction, lowering base rates from 4.5% to 4.25%. This decision follows the MPC’s decision to hold base rate at 4.5% in March, and marks the second reduction in rates this year after a 25 bp reduction in February.
Why has the MPC lowered rates?
The MPC’s decision to lower interest rates is likely spurred on by three key factors: declining inflation, slow economic growth and international volatility.
March saw a 0.2% decrease in CPI inflation, down to 2.6% in March compared to 2.8% in February and 3% in January. The fall in inflation has been considerably impacted by the falling prices for goods and energy. This brings inflation yet closer to the Bank of England’s target of 2%, allowing the Bank to be more proactive in stimulating the economy with reduced risk of runaway inflation.
Despite this fall in inflation, the UK’s economic growth remains weak. April saw business activity in the UK services sector decline for the first time since October 2023 as concerns over international political uncertainty grows, according to S&P Global. The services sector makes up a significant proportion of the UK’s economy, and this increases the need for the Bank to take active steps to stimulate the economy.
The requirement for domestic economic stimulation is also driven by international trade disputes and tariff implementations harming global trade flows, with UK exporters seeing demand declining. Both business and consumer confidence levels have declined as a result.
What does this mean for mortgage borrowers?
It is important to remember that mortgage lenders have been factoring in forecasts of the economic landscape for several weeks. Over this time, many of the major lenders have already been reducing rates by up to 0.3%.
As a result of this, those on fixed-rate mortgages are unlikely to see any immediate impact off the back of the MPC’s announcement.
If your fixed-rate mortgage is due to come to an end soon, however, you may be able to remortgage onto a lower rate than you were previously on, especially if you are coming to the end of a two-year term.
At the time of writing, the average rate for a 60% loan-to-value 2-year fixed product is 4.03%, while the average rate for a 60% loan-to-value 5-year fixed product is 4.08%.
Those on rates more directly linked to base rate, such as tracker or variable rate mortgages, will see a slight reduction in their monthly payments in line with the Bank’s announcement.
It is encouraging to see that despite global uncertainty, stability for UK mortgage borrowers remains intact for the time being at least. However, as general global economic volatility continues, it is vital that borrowers remain informed and prepared for possible future shifts in borrowing costs.
How can Cooper Associates Mortgages help?
Whether you’re buying your first home, remortgaging, or exploring alternative options, Cooper Associates Mortgages are here to help.
Our team of expert advisers pride themselves on offering friendly, holistic advice tailored to your unique circumstances and financial goals. We’ll help you understand the current market and guide you through the mortgage landscape with clarity and confidence.
At Cooper Associates Mortgages, we’re committed to securing the most suitable mortgage deal for you. And for added peace of mind, if a better rate becomes available after you’ve locked yours in, we’ll switch you to it.
Get in touch today to find out how Cooper Associates Mortgages can help you secure the right mortgage product for your needs.
