Mortgage Rates Drop but Uncertainty Grows Around Bank’s Next Move
Rates edge lower but MPC voting patterns raise questions about its motives.
3 minutes to read
Guessing the future trajectory of UK mortgage rates has become trickier since 6 February.
That was the date the Bank of England cut the base rate to 4.5% but the voting pattern of the nine members of the Monetary Policy Committee (MPC) caused confusion.
The vote was 7-2 in favour of a 0.25% cut but two members voted to reduce by 0.5%. One of the two was Catherine Mann, who had previously been resistant to a cut of any size.
She explained her decision as an attempt to “cut through the noise” of financial market volatility and provide reassurance about the future trajectory of the bank rate.
The noise in question came from the US, where bond markets began the year in jittery mood ahead of Donald Trump’s inauguration due to concerns that included the inflationary risks associated with tariffs.
The 10-year UK government bond yield was pushing 4.9% in mid-January but had fallen close to 4.5% last Friday morning as the early-January nerves settled. As a result, bank rate expectations have lowered in recent weeks, as the chart shows, and headlines about lower mortgage rates have re-appeared.
Last Thursday, financial markets were pricing in a bank rate of 3.88% in December 2025, which compares to 4.32% a month ago.
But Mann’s comments raise questions about how far the Bank of England is going beyond its official remit.
“The Bank of England appear to have forgotten that their job is to get inflation back to 2%, and not to cut Bank Rate in an effort to prop up growth,” said Michael Brown, a senior research strategist at financial broker Pepperstone.
The Office for National Statistics reported UK GDP growth of 0.1% in the final quarter of 2024 last week. However, the increase was largely due to higher government spending, while activity in the private sector shrank.
That said, anyone shopping for a mortgage will care primarily about rates edging below 4% again rather than the historical voting patterns of the MPC. But the reason behind Bank of England decisions matters if you are trying to anticipate what it will do next.
“The voting patterns of the MPC have had an influence on the outlook of lenders,” said Simon Gammon, managing partner of Knight Frank Finance.
“There is enough confidence that rates will be lower in three to six months that they can be more aggressive with their pricing. The big six lenders, which account for almost three-quarters of the UK market, have also gained extra confidence to lend against their deposit book, which means they are less reliant on the swap market.”
Adding to the confusion, part the assumption behind voting for a bigger cut was that current levels of inflation will be temporary, despite the Bank revising up its near-term CPI forecasts.
But not everyone is convinced that is the case.
“I cannot fathom how the MPC’s members are missing all the signs of an upwards inflexion in inflation,” said Savvas Savouri, chief economist at QuantMetriks. He says the rate of inflation will “inevitably breach the 3% upper ceiling of its target range.”
He cited factors including the rise in employer national insurance contributions, public sector and minimum wage pay increases, pledges to build more and the government’s green agenda.
For global context, rate cut expectations recently cooled in the US, which reported higher than expected inflation last month.
In cutting rates, Savouri says the MPC has also weakened the pound, which will drive inflation higher as overseas investors, most notably from China, become keener to spend their money on UK services and goods.
As for the property market, he believes the MPC is “kindly, albeit mistakenly, providing a very generous dose of monetary help.”
For anyone buying or re-mortgaging, the help is welcome, but how quickly more will follow is uncertain.
The recent MPC vote highlighted how unpredictable its future decisions may be. The best advice, not for the first time in recent years, is to stay close to your mortgage broker.