Bank of England halved its sales forecast

The Bank of England’s growth predictions have shrunk from 1.5% to 0.75% for 2025, as they cut interest rates to their lowest levels in almost two years.¹

This development came as the Bank of England cut interest rates from 4.75% to 4.5%.¹
Andrew Bailey, the governor of the Bank of England, said the Bank expected to cut rates further, but stressed that how much they are cut is being decided meeting to meeting, because the climate is too uncertain to make long term decisions at present. The Pound fell after this announcement was made, before beginning to stabilise.¹

Economic growth has been ‘broadly flat’ since March last year, according to the Bank's quarterly inflation report. The Bank now predicts the economy will shrink by 0.1%, which is a smaller drop than the formerly forecasted 0.3%.¹ The economy is also expected to grow by 0.1% between January and March, which is a fall from the 0.3% that was predicted last year. ¹ Inflation is predicted to rise, which furthers the need for a gradual, slow approach.

Prime Minister Keir Starmer told the BBC he was not satisfied with this growth forecast and has vowed to make growing the economy one of his key aims, stating that low forecasts “just spurs us on”.¹

The Bank has also updated their predictions for 2026 and 2027, with the economy anticipated to grow by 1.5%, up from 1.25%.¹ Inflation is also expected to rise, fuelled by soaring energy and water prices, alongside international factors like possible trade tariffs from the USA. Inflation is now expected to rise to 3.7% and only fall back to reach its 2% target at the end of 2027.¹

The Prime Minister confidently promised his government could turn the economy around with their ‘build baby build’ focus and by making tough decisions on nuclear, infrastructure, and planning. The shadow chancellor Mel Stride predicted there would be fewer cuts than expected due to Labour’s ‘disastrous budget’.¹ He also said that if the Office for Budget Responsibility changes its forecast in line with the Bank then the Chancellor would be unlikely to get the tax revenues she needs, which will lead to harder choices in the months to come.

How will this affect mortgages?

Those on a mortgage tracker deal, which follows the base rate, should see a £29 decrease in their monthly payments. Those on standard variable rates will have to see how their lender responds, and people on a fixed mortgage won’t initially be affected - although new and existing customers may be able to enjoy better deals later on. The cut may, however, mean that savers see less returns as their interest rates fall.

Sources

1. https://www.bbc.co.uk/news/articles/c0lzj3g77gpo

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February 2025