May’s announcement of the second cut to the base rate of 2025 had been hotly anticipated. The February cut to 4.5% at the first meeting of the year of the Bank of England’s Monetary Policy Committee, had prompted hope that further base rate cuts might come thick and fast.

However, at its March meeting, eight of the nine-strong MPC voted to hold the base rate at 4.5%. This was in response to increased geopolitical uncertainty and financial market volatility largely triggered by Trump’s range of tariff announcements and an increase in CPI inflation back home.

At May’s meeting, the base rate was reduced by a further 0.25 percentage points to 4.25%, but opinion was more divided this time, with a 5-4 majority to reduce the rate by 0.25 percentage points to 4.25%. Although two members voted to maintain the rate at 4.5%, the remaining two wanted a more aggressive cut of 0.5% to 4%.

So, what’s next – is the latest cut the sign of more to come, or will we have to wait a little longer for sub-4% interest rates?

Three further cuts?

The MPC’s next meeting will be in June and speculation remains that we will see three further cuts before the end of the year. The MPC has warned that it will continue to take a cautious approach to cuts, which would mean a 3.5% base rate by the year-end at best if three cuts of 0.25% percentage points were to be implemented.

However, some analysts believe the cuts will be more aggressive and that we may see a base rate of closer to 3% by the end of 2025.

There are five more meetings to come this year in June, August, September, November and December. While the IMF has predicted only two more cuts, other institutions, such as investment bank Morgan Stanley, have predicted 0.25 percentage point cuts at each of the next meetings to November.

The challenges faced

The challenge for the MPC will continue to be the uncertainty of the market. Donald Trump’s trade policies bring confusion to the market. Meanwhile, Labour’s promises of change don’t seem to have delivered in the way voters expected.

Inflation needs to be brought under control without hampering growth. It currently stands at 2.6%. While this is close to the 2% target, it is expected to rise again later this year. The MPC’s report admits risks around inflation, with concerns it will peak again this autumn to around 3.7% as energy prices impact consumer spending.

There is little doubt that further interest rate cuts will come during the rest of 2025. The challenge is predicting by how much they will fall and when those reductions will take place. All eyes will be on the MPC to see when they might make those cuts, and the mortgage lenders will be watching closely.

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