Latest reduction is a ‘positive signal’ but won’t transform rates overnight
The Bank of England has delivered a widely expected 25-basis-point cut to its base rate, bringing it down to 4%. It marks the fifth step in the central bank’s current easing cycle and signals a shift — albeit gradual — towards a more supportive environment for borrowers.
Markets had already priced in the move. Inflation rose slightly to 3.6% in June but remains well below its October 2022 peak of 11.1%. Combined with a softening labour market, including a 4.7% unemployment rate and fewer job vacancies, the conditions were in place for a modest cut. Governor Andrew Bailey’s recent comments around “gradual and careful” easing helped pave the way.
The Monetary Policy Committee voted by a majority of 5-4 to cut interest rates to 4%.
— Bank of England (@bankofengland) August 7, 2025
Find out more in our #MonetaryPolicyReport https://t.co/jtJlDzsgEC pic.twitter.com/chFJVqXZoo
The cut won’t result in an overnight plunge in mortgage rates, but it does reinforce the broader trend. The average two-year fixed rate fell to 5.02%, while the average five-year fixed stood at 5.01% on 31 July, according to Moneyfacts — both well down from their 2023 highs of 6.85% and 6.37%, respectively.
Still, for many borrowers rolling off ultra-low fixed-rate deals signed before the Bank began hiking in 2021, these figures offer limited comfort. UK Finance has estimated that 1.6 million fixed-rate mortgages will mature in 2025, with borrowers facing significant jumps in monthly repayments. Brokers are already seeing a rise in enquiries as clients attempt to get ahead of what’s next.
“This will be welcome news, especially for our tracker clients and those sitting on flexible rates who’ve been holding off for movement. It’s a positive signal that we’re heading in the right direction, and it should give more confidence to those looking to remortgage or take their next step” said Alan Mackenzie, founder and broker at Your Next Step.
While the base rate influences broad monetary conditions, fixed-rate mortgages are priced off swap rates, which respond more directly to expectations around inflation, bond yields, and economic growth. That means lenders won’t necessarily follow the Bank’s lead immediately — or uniformly.
"With the BoE cutting rates it gives greater confidence to the market as a whole, whilst the decreasing trajectory expectations remain, there is a question mark over whether the bigger picture and global economy will affect this going forward. A rate cut now will provide certainty for some clients that are hoping the market is going in a positive direction," said Lucy Palmer, mortgage broker at TMC Ltd.
As the market adapts to shifting signals, brokers remain essential in translating macroeconomic changes into tailored advice. This rate cut may not reset the market — but it could help shift the mood. The challenge now lies in helping borrowers make informed choices amid ongoing volatility.
