It is the second cut in three months, following the drop to 4.75% in November and the subsequent freeze in December, with the MPC voting by a majority of 7-2 in favour of the cut by 0.25%.
Two members of the committee, Swati Dhingra and Catherine Mann, wanted a further reduction of the rate – which dictates the level of interest banks must pay – to 4.25%.
As noted in the minutes of the meeting, the reason for the decrease in the base rate was “sufficient progress on disinflation in domestic prices and wages”.
However, there was still an air of trepidation about the future of the UK economy.
The Consumer Prices Index (CPI) level of inflation is 2.5%, but a revised forecast anticipates a rise to 3.7% by the end of the year, from its previous 2.8% prediction at the last meeting.
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As well as a changed inflation rate forecast, gross domestic growth was also revised downwards from a forecast of 1.5% in December to 0.75%.
The committee said it will continue its cautious approach and “keep a close attention to any consequent signs of more lasting inflationary pressures”.
It is the first MPC vote on the base rate since Donald Trump was elected as the president of the US. Since then, Trump has announced tariffs for imports from China and has threatened to do the same for neighbouring Canada and Mexico, while no plan for European and goods from the UK has been announced yet.
Those policy decisions from across the pond were also considered in the MPC’s decision-making.
The minutes noted: “The committee discussed recent global economic developments, and in particular the extent to which these had been reflected in yield curves across advanced economies.”
It continued: “In the days leading up to the MPC’s policy decision, the US administration had made various announcements on trade tariffs, to which some other Governments had responded. The committee noted that this was a rapidly evolving situation, which it would be monitoring closely, and that the ultimate impact would depend on the final composition of policies.
“Nevertheless, there had already been an increase in economic uncertainty globally and a pick-up in financial market volatility.”
‘Unlikely to make a real difference’
Experts have reacted to the base rate decision and Alastair Douglas, TotallyMoney’s CEO, said the change to the rate is “unlikely to make a real material difference on people’s finances”.
Douglas said: “Most mortgage lenders will have already factored this into their pricing, while some banks have already started reducing savings rates.”
He added: “Energy, water, phone, and broadband bills continue to rise, while council tax in some areas will see a 10% hike this April. People’s spending power is being reduced, while businesses are seeing their operating costs rise along with their National Insurance contributions.”
Andrew Hagger, founder of Moneycomms.co.uk said: “With council tax hikes around the corner and petrol/diesel on the way up again, this rate cut will offer borrowers a little respite, however, budgets remain squeezed for many people. Consumers will be hoping this is not the last cut of 2025 as a single move by the MPC isn’t enough to make a meaningful difference to their finances.”
He added: “Savers will see easy-access savings rates edging lower, so should check out the best buys and switch to a better rate if their bank is offering a sub-standard deal.
“If you’re thinking of putting some cash away for a year or two in a fixed rate bond or ISA, now would be a sensible time to lock in at current levels while you still can.”
Pension peril?
Meanwhile, for pensioners heading to retirement, the rate cut offers a mixture of emotions, according to Lily Megson, policy director at My Pension Expert.
Megson said: “For many Britons, a lower cost of borrowing is positive, but the flip side is that lower interest rates will mean challenges for savers, especially those nearing retirement. Indeed, we should expect many retirement planners to now question whether their strategy and financial products still serve their interests. However, without reliable support, these questions can be hard for people to answer.
“That’s where the Government must step in and do much, much more. We’ve heard plenty of rhetoric about pension reforms designed to both boost the economy and provide better outcomes for savers.”
Mortgage movements
While lower interest rates could be on the horizon, the same for mortgage payments is not necessarily true, according to Laura Suter, director of personal finance at AJ Bell.
Suter said: “Many homeowners will be baffled that despite multiple interest rate cuts, average mortgage rates are higher than they were a year ago. Even ahead of today’s base rate cut, which looked like a dead cert, mortgage rates headed in the opposite direction.
“Two-year fixed rates are now higher than they were in November last year and only a smidge lower than February last year – despite two base rate cuts since then – while five-year rates are higher than two years ago.
“Homeowners have the turmoil in the bond markets to thank for their higher mortgage bills. While mortgage rates are linked to the base rate, they aren’t directly based on them. Instead, they are reliant on swap rates, which track Government bond yields – so bond market turmoil raises yields, increasing borrowing costs for banks and, in turn, mortgage rates.”
She added: “There is good news for anyone on a tracker or variable-rate mortgage, who will see their monthly mortgage costs drop as a result of today’s cut. For someone with £125,000 of mortgage borrowing, the 0.25 percentage point cut means an £18 a month saving on their bill, while for those with £400,000 of mortgage borrowing, a 0.25 percentage point cut means a £58 monthly saving – or almost £700 a year.”
