Bank of England announces cut to interest rates

The Bank of England has announced it has cut its base interest rates to 3.75%, bringing interest rates to their lowest level since early 2023.

Economists on the Bank’s Monetary Policy Committee (MPC), which is responsible for setting interest rates, voted 5-4 in favour of the cut, with the opposing members preferring to hold rates at 4%.

The cut follows the most recent inflation data from the Office of National Statistics (ONS) that saw the rate of year-on-year price rises slow to 3.2% in November, a 0.4 point fall on the previous month’s figures.

Despite inflation remaining above the Bank of England’s 2% target, the sharper-than-expected fall in inflation gave the Bank’s economists breathing room to cut rates to help stimulate economic growth. Growth for the last three months of 2025 is expected to flatline, while unemployment has risen to its highest level since the Covid-19 pandemic as businesses continue to grapple with higher employment costs following April’s rise in Employer National Insurance Contributions.

Looking ahead, Bank of England now expects inflation to fall back towards its target rate more quickly, reaching 2% as early as Spring or Summer 2026, compared to previous predictions that inflation would not fall to that level until 2027. However, the Bank’s Governor, Andrew Bailey, remains cautious about how far and quickly interest rates would continue to fall.

The cut to interest rates will be a welcome Christmas present for the approximately 500,000 UK homeowners whose mortgages track the Bank of England base rate, with the cut amounting to approximate savings of around £29 per month on repayments.

Savers, meanwhile, will be less joyous about the new and will see the return on their savings likely fall as a result, after already being hit with a rise on tax on interest, and a cut to annual ISA allowances announced in last month’s Budget.