BANK OF ENGLAND DROP INTEREST RATES TO 4%

Thursday August 7, 2025

BREAKING NEWS: Bank of England Slashes Interest Rate to 4% Amid Economic Strain — Major Implications for UK Property Market

In a landmark decision that signals a significant shift in monetary policy, the Bank of England today announced a 0.25% interest rate cut, reducing the base rate from 4.25% to 4%. This move, announced at midday following the Monetary Policy Committee’s latest meeting, represents the lowest base rate since March 2023 and comes amid mounting pressure on household finances, sluggish economic growth, and rising unemployment.

The decision was not unanimous and in fact marks a historic first for the UK’s central bank. The nine-member Monetary Policy Committee (MPC) was deadlocked in a 4–4 tie before one member, initially in favour of a deeper cut to 3.75%, sided with the 0.25% majority to push the final vote to 5–4.

Economic Backdrop: Caution, Concern, and the Cost of Living

The backdrop to this rate cut is one of mounting economic challenges. Inflation, which had shown signs of slowing earlier in the year, has once again begun creeping upward — registering 3.6% in June, and now forecast to reach 4% by September, according to internal Bank projections. This is still double the Bank’s 2% target and is largely driven by increases in food prices, utility bills, and energy costs.

At the same time, the UK jobs market is weakening. Unemployment has risen to 4.7%, the highest level since 2021, and signs of strain are now visible across multiple sectors. Business investment has slowed, wage growth is beginning to flatten, and retail sales in June fell short of forecasts. The Bank’s own estimates suggest economic growth flatlined in Q2, following a modest 0.7% increase in Q1.

Governor Andrew Bailey addressed the press shortly after the announcement, describing the vote as “finely balanced,” but reiterated that the Bank must act decisively in response to “a loss of momentum in key sectors of the economy.”

A Historic Two-Round Vote: First of Its Kind

In a highly unusual move, the MPC vote was conducted in two rounds after an initial stalemate. According to reports, one member voted for a larger 0.5% cut, while four supported no change to the current rate. This left the committee gridlocked. Following further discussion, the dovish member switched to align with the 0.25% camp, allowing the final vote to pass – though just barely.

This signals a central bank that is deeply divided, but also increasingly willing to act in support of demand and affordability, particularly in light of household debt levels and recent contractions in business lending.

Impact on Property Buyers and Homeowners

For the property sector, this rate cut arrives as a potentially pivotal moment.

While fixed-rate mortgage holders won’t feel the change immediately, the 900,000 mortgage deals due to expire in the second half of 2025 now stand a good chance of being refinanced at more favourable rates. Lenders have already started signalling that new mortgage products — both fixed and tracker — will be adjusted in response to today’s announcement.

Those on tracker or variable rate mortgages should expect savings within the coming weeks. For a mortgage of £250,000, the 0.25% drop could translate into £30–£50 a month in reduced repayments.

First-time buyers, who have faced some of the toughest affordability pressures in a generation, may now find themselves able to access a broader range of products — and crucially, pass lender affordability assessments more easily.

This could have immediate local implications. At Auckland Estates, we’ve already seen enquiries rising over the last quarter, and this news is expected to fuel additional momentum as buyers attempt to lock in lower rates.

What Sellers Need to Know

For vendors, today’s news could offer a welcome injection of urgency into a housing market that, while far from stagnant, has certainly cooled since the highs of 2021–2022. Many potential buyers have been sitting on the sidelines waiting for a signal that affordability will improve. This may be that moment.

Properties that have been lingering on the market could now benefit from increased competition and more flexible borrowing conditions. However, sellers should still remain realistic — the economy remains fragile, and pricing must reflect local demand, condition, and comparable sales.

We advise sellers in and around Potters Bar and Hertfordshire to speak with us directly about how this rate cut may change your property’s saleability.

Caution Remains: No Rate-Cutting Spree Ahead

Despite the cut, the Bank was clear: this is not the beginning of an aggressive rate-cutting cycle. Future cuts will be “data-dependent,” and the MPC warned that inflation remains a key concern.

There’s also growing speculation that the Bank is moving faster than the US Federal Reserve, which has so far held firm in recent months. Analysts believe that while the BoE is looking to support demand and soften borrowing costs, it is still highly aware of the dangers of cutting too quickly — especially with wage inflation and utility price pressures still looming.

What It Means for the Local Market — Auckland Estates’ View

At Auckland Estates, we view today’s interest rate decision as a potential turning point. With borrowing costs slightly reduced and confidence slowly returning, we expect:

An uptick in mortgage applications and new buyer registrations in Q3
Renewed interest in homes under £750,000, particularly among upgraders and first-time buyers
More remortgage activity as fixed deals end and owners seek better terms
Increased investor confidence in residential buy-to-let, particularly in commuter zones

However, we also advise both buyers and sellers to proceed with careful consideration. Lending criteria remain tight, and while rates are lower, they are still significantly above the ultra-low levels seen during the pandemic.

In Summary

Today’s cut to 4% may be modest on paper, but symbolically and practically, it’s a big move. For the first time in over a year, the Bank of England is signalling a willingness to support growth, ease borrowing pressure, and stimulate the housing market — albeit cautiously.

As your local property experts, Auckland Estates is here to guide you through what this means — whether you’re planning to buy, sell, invest, or refinance.

Get in touch with our team today for personalised advice or to book a valuation. The window of opportunity may be opening — don’t miss your chance to move confidently in a shifting market