The Bank of England has delivered an early Christmas gift to borrowers, slashing its base interest rate to the lowest level in nearly three years.
Monetary Policy Committee Announces Fourth Cut
On Thursday 18 December 2025, the Bank's Monetary Policy Committee (MPC) voted to reduce the benchmark interest rate from 4 per cent to 3.75 per cent. This marks the fourth consecutive reduction implemented throughout the course of this year.
The decisive move brings the official cost of borrowing down to its lowest point since February 2023. The announcement, made at midday, was closely watched by markets and millions of households across the country.
Economic Drivers Behind the Decision
The MPC's decision was driven by a confluence of recent economic data pointing to a cooling economy. The most significant factor was a notable drop in the inflation rate, which fell to 3.2 per cent in November, moving closer to the Bank's 2 per cent target.
This easing price pressure was coupled with other concerning signals, including rising unemployment figures and a series of poor economic readings. Together, this data provided the committee with the justification needed for another rate cut to stimulate economic activity.
Implications for Mortgages, Savers, and the Economy
The immediate impact of the cut will be twofold. For the UK's 1.9 million mortgage holders coming off fixed-rate deals by 2026, it offers potential relief. While most existing mortgage deals are locked in and won't change immediately, lenders are expected to adjust pricing for new deals and remortgages based on the new, lower rate environment.
Conversely, the news is less welcome for savers. The reduction in the base rate is expected to lead to lower savings rates across banks and building societies, diminishing returns on deposits.
The broader hope is that cheaper borrowing costs will provide a boost to consumer spending and business investment, helping to counteract the current economic sluggishness.
