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"0.1% contraction in GDP adds to the growing pressure on the Bank of England to reduce the base rate"

ended 14. March 2025

Newspage asked economists and mortgage brokers how the economy contracting in January might impact the base rate decision next week. Though most believe, as the markets predict, the decision will be a firm hold, one says “this latest economic weakness could shift expectations for a summer rate cut, which may filter into swap rates and, in turn, mortgage pricing.” Views will appear below until 09:00.

8 responses from the Newspage community

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Babek Ismayil
CEO at homebuying platform OneDome
A decline in GDP may raise concerns about a potential recession, but it is unlikely to trigger immediate action from the Bank of England. With inflation reaching a 10-month high in January, the Bank is expected to maintain its cautious stance and keep interest rates on hold for now. Homeowners will likely need to remain patient, as borrowing costs may not ease until price pressures begin to soften. But with the National Insurance increase expected to prove inflationary, when this happens is anyone's guess.
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Gabriel McKeown
Political & Economics Writer at Sad Rabbit - Substack Newsletter
Interest rate decisions will be the defining factor of 2025, as the government’s intervention has been more rhetorical than real, and essential support for industries remains mired in anti-growth policies and misguided tax reforms. The MPC is expected to maintain the current interest rate at its upcoming meeting, with interest rate swaps pricing in a 95% chance of a rate hold, as elevated inflation continues to hamper the rate cutting trajectory. This combination of high mortgage rates and economic uncertainty is a toxic mix for the housing market, pricing out first-time buyers and leaving existing homeowners struggling to make ends meet. However, the Bank must delicately balance supporting economic growth with controlling inflation, as growth is beginning to weaken significantly, and if the Chancellor fails to deliver robust fiscal stimulus in the months ahead, this trend is likely to continue with a real risk that Britain could tumble headfirst into a protracted recession.
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Jamie Elvin
Director at Strive Mortgages
The 0.1% contraction in GDP adds to the growing pressure on the Bank of England to reduce the base rate. However, it’s unlikely to be enough to trigger an immediate rate cut next week. Inflation remains the key concern, and the Bank will want to see sustained progress before acting. However, this latest economic weakness could shift expectations for a summer rate cut, which may filter into swap rates and, in turn, mortgage pricing. If markets start pricing in earlier cuts, we could see downward movement in fixed mortgage rates in the coming weeks.
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Ben Perks
Managing Director at Orchard Financial Advisers
The Monetary Policy Committee have proven to be ultra-cautious in the past so a hold is likely. Throughout the cost of living crisis the MPC members have been reluctant to be proactive. No one wants to lift their head above the parapet until it’s 100% safe to do so, by then it’s often too late to help those in desperate need. So, regrettably, I don’t think even the most ‘dovish’ dove on the committee would have the courage to cut next week. They should, as it would help thousands of people and stimulate the market, but for a group more concerned with reputational damage, they’ll give it a few more months.
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Riz Malik
Independent Financial Adviser at R3 Wealth
The biggest catalyst for cuts is likely to come from Trump's trade wars and his apparent desire to crash the US economy. If this carries on and the markets react as they have, lower mortgage rates could be on the cards sooner than previously expected.
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Dariusz Karpowicz
Director at Albion Financial Advice
The 0.1% GDP contraction has certainly cranked up the pressure cooker for the Bank of England, but don't expect Governor Bailey to blink just yet. While this economic shrinkage adds to the growing chorus calling for relief, the MPC's notorious caution means we're likely to see them sitting on their hands at next week's meeting despite the increasingly compelling case for action. A rate hold remains the odds-on favourite, with markets pricing in a 95% chance the Bank will keep its powder dry. However, this latest economic wobble could shift the timeline for summer cuts, potentially nudging swap rates downward in the weeks ahead. The real wild card might come from across the pond, where Trump's trade wars could inadvertently become the catalyst that finally pushes mortgage rates lower, a silver lining for struggling homeowners caught amid high borrowing costs and economic uncertainty.
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Mike Staton
Director at Staton Mortgages
Every time I see a reduction I GDP, a little part of me smiles as this is the catalyst for a BOE rate reduction. Whilst many people are expecting the BOE to hold, I still believe a reduction will happen, especially considering we have people on the MPC who strongly believe a bigger rate reduction should have been applied last time. My own mortgage is currently a tracker, the reason I took that out was because I strongly believe that 2025 will be the year of rate reductions which will hopefully give us our first year of financial normality and stability this decade in 2026
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Mark Eaton
COO at April Mortgages
Despite UK Plc contracting in January, the Bank of England will almost certainly err on the side of caution next week given that inflation is rising. The country desperately needs a rate cut but it's unlikely to get one. What all this economic uncertainty ultimately highlights is the unnecessary exposure generated by short-term fixed rates. Each two years so many people are left at the mercy of the markets and current economic conditions. It's no surprise we're seeing a significant uptick in people opting for longer term fixes, which offer certainty of payment whatever is happening in the wider economy.