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MPC meeting preview: Will we see a base rate cut?
Markets are currently pricing in a 0.25% rate cut at the MPC meeting on 7 August, potentially bringing the base rate down from 4.25% to 4.0%.
Why now? Inflation rose to 3.6% in June, still above the 2% target. At the same time, unemployment has crept up to 4.7%, prompting concerns about slowing economic momentum. Retail activity has softened, and mortgage approvals, while steady, remain below pre-pandemic norms.
What’s the outlook? Most economists expect a split vote among the nine-member MPC. A majority appear in favour of a modest cut now, with the potential for one or two further cuts by the end of the year, taking the base rate to 3.75% by December, according to Reuters polling.
Impact for borrowers:
- If a cut is confirmed, fixed rates may not shift, as SONIA (Sterling Overnight Index Average ) swap rates have largely priced in a reduction in the base rate.
- Tracker mortgage holders may see an immediate benefit, though the extent will depend on their product terms.
Key dates to watch:
- 7 August – MPC decision and statement
- 20 August – next CPI inflation release
- 18 September – MPC decision and statement
UK house prices rebound in July ahead of key rate decision
According to Nationwide, UK house prices rose by 0.6% in July following a 0.9% decline in June. The average property now sits at £272,664, with annual growth ticking up to 2.4%. This rebound, driven by improved affordability (house price to income ratio at a 10-year low), comes just days before the Bank of England’s Monetary Policy Committee (MPC) meets on 7 August.
With rate cuts widely expected, this house price recovery may boost confidence, particularly among first-time buyers.
Where are mortgage rates now?
SONIA swap rates have dipped slightly across the curve, supporting the market’s expectation of an imminent base rate cut. Short-term swap rates are showing the clearest signs of easing, while long-term rates remain relatively steady. This mixed picture reflects growing confidence that borrowing costs will reduce gradually—though lenders remain cautious.
Here’s a snapshot of recent SONIA swap trends:
Source: Chatham Financial
What we’re seeing
- Short-term rates (1–3 years): Mild downward shift, driven by anticipated BoE easing.
- Medium to long-term rates (5–10 years): Flat to slightly up, suggesting lenders are balancing optimism with caution.
- Market sentiment: Lenders may continue trimming fixed rate pricing, especially on 2–5 year deals, if swap rates hold or decline further.
What this means for borrowers
Borrowers due to remortgage in the next six months should begin exploring options now, as lenders could start offering more competitive deals. Clients on SVRs (Standard Variable Rates) or tracker rates may see slight reductions in payments if the base rate is cut as expected on 7 August.
Private Finance insight
We’re in a transitional phase. While we’re not yet seeing a rush of dramatic mortgage rate reductions, the direction of travel is clear. Lenders are adjusting margins cautiously. We anticipate some competitive repositioning to continue for the remainder of the year, however, as we know, market conditions can change, and it is best to lock in a rate as early as possible.
This article is based on information available on the date of issue, 4th August 2025.
Disclaimer: The views and opinions expressed in this content are those of the author and do not constitute financial, legal, or professional advice, nor should they be interpreted as a recommendation. They do not necessarily reflect the official views, policies, or positions of Private Finance, and are not intended to represent broader market or industry perspectives.
