Bank of England Cuts Interest Rates For Christmas

The Bank of England today made its final big money call of the year: an interest rate cut that takes the UK’s base rate down to 3.75%. It’s a small number with a big footprint, because the base rate influences the price of borrowing across the country, from mortgages and personal loans to credit cards and business finance, and it also shapes what savers can earn on their cash.

This latest decision was not a shock. Many economists and investors had been expecting the Bank to lower rates after holding them steady at 4% last month. Though expected, the rate cut is still a welcome Christmas gift. For households still feeling the cost-of-living squeeze, and for anyone refinancing in 2026, this interest rate cut is also a meaningful signal about where the Bank thinks inflation and the economy are heading next.

You can use our calculator to see how the cut affects your mortgage payments.

Bank of England base rate history (last 36 months)

Below is the official Bank of England (BoE) Bank Rate change history covering the last 36 months (from December 2022 to December 2025).

Over this 36‑month window, Bank Rate rose from 3.50% to a peak of 5.25% before falling back to 3.75%.

Source: Bank of England — Official Bank Rate history (BoE database), “Date Changed” and “Rate”.

Base rate cut to 3.75% after a close vote

The Monetary Policy Committee (MPC) voted 5–4 in favour of cutting the base rate by 0.25 percentage points, down from 4% to 3.75%. It’s the first time the rate has fallen below 4% since January 2023, a psychological milestone as well as a practical one.

That narrow split matters because it tells you the debate inside the Bank is finely balanced, i.e. the direction of travel may be down, but the speed and the number of further cuts are not guaranteed.

Why the Bank cut rates now: inflation is cooling faster than expected

At the centre of the story is inflation, and more specifically the fact that it has eased more quickly than many forecasts suggested. UK inflation was recorded at 3.2% in November, down from 3.6% in October and below the recent peak of 3.8% seen in September.

Inflation is still above the Bank's 2% target, but the latest data has strengthened the case that price pressures are cooling. Looking at markers aside from the headline inflation number showed softer wage growth and a slowdown in economic activity.

In the Bank's own meeting minutes, policymakers said headline inflation was expected to fall back more quickly in April to closer to 2%, which is considerably earlier than a timeframe that had previously been pushed out toward 2027. That shift in the inflation outlook is one of the key reasons this interest rate cut landed now, rather than later.

BoE Boss Andrew Bailey tipped the balance

Today's vote to cut was tight, with Governor Andrew Bailey the only MPC member to switch from last month's hold call. He backed a cut this time around, which was a move that effectively tipped the final outcome.

Bailey's message is cautiously optimistic but not complacent. He said the UK has passed the recent peak in inflation and that it has continued to fall. He also suggested rates are on a "gradual path downward". However, he added an important warning that with each cut the central bank makes, further cuts will be even tighter to call.

The Bank wants to support a slowing economy, but it also wants to avoid reigniting inflation. The balance between those goals will decide what happens next.

Budget measures and inflation: why fiscal policy is part of the story

The Bank’s assessment doesn’t exist in a vacuum. It also reflects what’s happening in government policy. In the minutes of their meeting the MPC said measures in Chancellor Rachel Reeves' Budget were likely to lower inflation by around 0.5 percentage points. Those measures include one-off support for household energy bills and a freeze in fuel duty, due to kick in from April next year (2026). Speaking of the chancellor, she welcomed the rate cut decision, calling it "good news for families".

What this interest rate cut means for mortgage rates

For many people, the big question is simple: will this cut lower my mortgage payment?

The base rate is a guide for banks and building societies when setting mortgage rates. A cut to 3.75% can help pull mortgage pricing down over time, especially for trackers/discounts (which tend to move in line with the base rate) and for new fixed-rate deals if lenders expect further easing ahead.

But mortgage pricing is not a one-to-one mirror of the base rate. Lenders also price mortgages using expectations for future interest rates, plus competition, funding costs and risk appetite. The result is that some of the benefit can be "priced in" before the decision, while other changes filter through gradually.

If you’re coming off a fixed deal in 2026, this is the moment to get organised. Even modest rate shifts can add up over years. That’s where an interest rate calculator becomes essential: it can help you estimate how different rates affect your monthly payment, the total interest you pay, and the trade-off between a shorter fix (flexibility) and a longer fix (certainty).

Borrowers beyond mortgages: loans, credit cards and businesses

Lower base rates can also help reduce the cost of borrowing for personal loans and some credit products, though changes can be slower and less direct than with trackers. For businesses, especially smaller firms using variable-rate borrowing, a cut can offer breathing space, not always enough to transform the outlook, but potentially enough to improve cash flow and confidence.

The cut will help bring down interest rates applied to credit cards, mortgages and loans. In day-to-day terms, this is about affordability: it may reduce the share of income that goes toward interest, leaving more room for bills, savings, or spending in the real economy.

What it means for savers: the flip side of an interest rate cut

Every interest rate cut creates winners and losers. If you’re borrowing, lower rates are usually welcome. If you’re saving, it can be a different story.

As the base rate falls, banks and other providers often reduce savings rates too, sometimes quickly. If you rely on interest from cash savings, it’s worth keeping an eye on your accounts, and shopping around when you see drops. The gap between "headline" best-buy rates and what many people actually earn can widen in periods of change.

Are more cuts coming in 2026? The case for optimism — and the reasons for caution

There's "Christmas cheer" in a cut that was widely expected, and financial markets have been pricing in one or maybe two more cuts next year. But there’s also genuine uncertainty about what lower inflation really means.

One explanation is encouraging: inflation is easing because policy is working and price pressures are fading naturally. Another explanation is more concerning: inflation is falling because the economy is slowing, people are spending less, and growth is stalling. The Bank of England expected economic growth to drop to zero in the final quarter of the year.

There are also global risks. Trade tensions and the possibility of cheap imports being diverted, affecting consumer prices and business competitiveness. And there’s a behavioural concern too: after several years of higher inflation, households and workers might start to "bake in" expectations of bigger pay rises, which can keep inflation stubborn.

Interest rate cut: What should do you now?

For households, the smart move is to translate today’s interest rate cut into practical next steps:

• If you have a mortgage renewal coming, run scenarios and start comparing deals early.
• If you’re on a tracker, check how quickly your lender passes on the cut.
• If you’re a saver, watch for rate changes and consider whether you need flexibility or can lock in a competitive rate.
• If you have expensive debt, review whether refinancing could reduce interest costs as rates trend down.