Bank of England Cuts Base Rate to 4.00% in Finely Balanced August Decision

On 7 August 2025, the Bank of England's Monetary Policy Committee (MPC) voted to reduce the base interest rate by 0.25 percentage points, bringing it down from 4.25% to 4.00%. The decision was far from unanimous, with the committee splitting 5-4 in favour of the cut. This razor-thin margin underlines the difficult balancing act facing policymakers as they weigh slowing economic growth against stubbornly persistent inflation.

This marks the second rate cut in the current easing cycle, following the reduction from 4.50% to 4.25% announced in May 2025. Together, the two cuts represent a cumulative half-percentage-point reduction from the 4.50% level that had been in place since early 2025. For homeowners, borrowers and prospective buyers, the direction of travel is becoming clearer, even if the pace remains cautious.

Why the MPC Voted to Cut

The committee's decision was driven by a combination of factors that pointed towards the need for looser monetary policy. Economic growth had weakened noticeably in the second quarter of 2025, with GDP figures coming in below expectations. The labour market, which had remained surprisingly resilient throughout much of the tightening cycle, was showing clear signs of cooling. Unemployment edged higher, wage growth moderated, and job vacancies continued to decline from their post-pandemic peaks.

Inflation, while still above the Bank's 2% target, was on a gradual downward trajectory. The MPC judged that the disinflationary trend was sufficiently embedded to justify a further loosening of policy, particularly given the drag on economic activity from elevated borrowing costs. However, the four dissenting members argued that inflation risks remained too high and that the committee should hold rates steady until clearer evidence of a sustained return to target emerged.

The narrow vote highlights a genuine split within the committee about the appropriate speed of easing. Governor Andrew Bailey acknowledged the difficulty of the decision, noting that the MPC would continue to take a "meeting by meeting" approach and that future moves would depend entirely on incoming economic data.

What This Means for Mortgage Holders

The practical impact of the rate cut varies depending on the type of mortgage a borrower holds. For those on tracker mortgages, which move directly in line with the base rate, the benefit was immediate. Monthly payments fell automatically following the announcement. For a typical borrower with a £200,000 repayment mortgage on a tracker deal, the cumulative effect of the two 2025 rate cuts (from 4.50% to 4.00%) translates to savings of roughly £25 to £30 per month compared to where they stood at the start of the year.

• Tracker Mortgages: Immediate and automatic reduction in monthly payments in line with the 0.25% base rate cut
• Variable Rate Mortgages: Most lenders passed on some or all of the reduction to standard variable rate (SVR) borrowers, though the timing and extent varied by lender
• Fixed Rate Mortgages: No immediate change to existing fixed deals, but new fixed rate products began to fall as lenders repriced - consider remortgaging options if your deal is ending soon

Lenders Respond with Lower Fixed Rates

Major high street lenders moved swiftly to adjust their mortgage product ranges following the August announcement. Halifax, NatWest, Barclays and Santander all reduced their fixed rate offerings in the days and weeks after the decision. The most notable development was that two-year fixed rates dropped below 5% at several lenders for the first time since 2024, a symbolic threshold that had proved stubbornly difficult to breach.

Competition among lenders intensified markedly, with many institutions targeting the large pool of borrowers whose fixed rate deals were coming to an end during the second half of 2025. Remortgage products attracted particularly aggressive pricing, as lenders sought to win new business. Some lenders also improved their loan-to-value tiers, making better rates available to borrowers with smaller deposits.

For those approaching the end of a fixed term, the advice from mortgage brokers was clear: start shopping around early. Most lenders allow borrowers to lock in a rate up to six months before their current deal expires, meaning that securing a competitive rate now could provide protection against any unexpected changes in the market.

What Comes Next?

Looking ahead, financial markets were pricing in at least one further rate cut before the end of 2025, with some forecasters suggesting the base rate could reach 3.75% by early 2026. However, the closeness of the August vote serves as a reminder that nothing is guaranteed. The MPC will be watching inflation data, employment figures and global economic conditions closely before making any further moves.

For borrowers, the key message is one of cautious optimism. The trend towards lower rates appears to be established, but the path is unlikely to be smooth or rapid. Those considering a new mortgage or remortgage should take professional advice to ensure they choose the right product for their circumstances. Whether to fix now or gamble on further cuts with a tracker or variable rate remains a deeply personal decision that depends on individual risk appetite and financial situation.

Related: Bank of England Cuts Base Rate to 4.25% in May 2025