Bank of England’s interest rate decision means ‘amazing January deals may stick around’

While markets had widely anticipated no change at February’s meeting, the closeness of the vote came as a surprise and was interpreted as a sign that momentum is building within the committee for looser monetary policy.

The MPC will next meet on March 19, with a growing number of economists and market participants now expecting a rate cut at that meeting.

The decision follows a reduction in December, when the Bank lowered rates from four per cent to 3.75 per cent, marking the first cut since rates peaked at 5.25 per cent in 2024.

Lorna Hopes, mortgage specialist at chartered financial advisers Smith & Pinching, said the division among policymakers was more significant than the headline decision.

“In a big surprise, the nine members of the MPC voted by the narrowest of margins to hold the Base Rate unchanged,” she said.

Hopes noted that while a hold had been widely expected, the fact that four members favoured an immediate cut suggested that borrowing costs could begin to fall sooner than previously anticipated.

She said: “Nobody expected a rate change today, but having four members vote for an immediate reduction is a strong signal that cuts are edging closer.”

GETTY

The decision comes against a mixed economic backdrop. Inflation remains stubbornly above target, with Consumer Price Index (CPI) inflation rising to 3.4 per cent in December from 3.2 per cent the previous month, according to the Office for National Statistics (ONS).

The Bank of England’s inflation target is two per cent.

At the same time, economic growth has been weak. Gross domestic product expanded by just 0.1 per cent in the three months to November 2025, underlining the fragility of the recovery.

For borrowers, the vote split has sharpened focus on the outlook for mortgage rates. January saw an aggressive price war among lenders, with banks and building societies cutting rates to attract business.

Hopes said: “Many borrowers can now get a fixed rate of well under four per cent, and there are some eye-catching deals available to remortgagers and buyers with a large deposit.”

However, despite the Bank holding rates, several major lenders have moved to increase mortgage pricing this week.

Nationwide Building Society raised rates by up to 0.19 percentage points, while Barclays and Virgin Money increased rates by 0.15 percentage points. Santander also made smaller increases, lifting some products by up to 0.07 percentage points.

These changes follow several months of gradual reductions that had pushed the cheapest mortgage rates down from around 4 per cent to roughly 3.5 per cent.

Currently, borrowers with a 40 per cent deposit can secure a two-year fixed mortgage at around 3.55 per cent, while the most competitive five-year fixed rates stand at approximately 3.73 per cent.

David Hollingworth, associate director at broker L&C Mortgages, warned that recent increases could signal a broader shift.

“As more lenders lift rates, it’s only more likely that we will see others follow suit,” he said.

Sam Kirtikar, chief executive of The Mortgage Broker Group, said the Bank’s decision would offer reassurance to some borrowers.

“Those on fixed rates are completely insulated for now, while tracker and variable rate customers should see stability rather than relief,” he said.

Mr Kirtikar added that mortgage pricing is driven more by swap rates and competition between lenders than by the base rate alone.

“Pricing has already adjusted positively to the expectation of no change, so today’s announcement is unlikely to move rates materially in either direction,” he said.

Despite this, The Mortgage Broker Group remains optimistic that further rate cuts are on the horizon, with Mr Kirtikar expressing hope that the Bank could move again as early as April.

Fergus Allen, Head of Bridging at Clifton Private Finance, urged prospective buyers not to delay decisions in the hope of marginally lower rates.

“Waiting in the hope of further drops could mean missing out on the most competitive rates currently available,” he said.

Mr Hollingworth advised borrowers with deals expiring later in the year to secure a new rate several months in advance.

This approach allows borrowers to lock in current pricing while retaining the flexibility to switch to a cheaper deal should better options become available before completion.