Today, the Bank of England’s Monetary Policy Committee (MPC) announced that the base rate had been cut to 3.75% by a vote of 5:4, with the minority choosing to maintain it at its previous 4%.
The minutes of the MPC’s meeting suggested that some members were more concerned about the persistence of high inflation.
The committee said the future easing of monetary policy would depend on how the outlook for inflation evolved, and while the base rate was “likely to continue on a gradual downward path”, “judgements around further policy easing will become a closer call”.
A narrow decision
Peter Stimson, director of mortgages at MPowered, said that although the cut was widely anticipated, the decision ended up being a “slim margin rather than a slam dunk”.
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He said: “With inflation falling away and Britain’s economy shrinking, the markets had convinced themselves that today’s decision would be a full-throttle cut, which would be swiftly followed by more in 2026.
“The narrowness of the vote suggests that the bank’s rate-setting committee isn’t so sure. Nearly half of its members voted to leave rates unchanged, and the accompanying minutes were curiously ambivalent.”
Stimson said the swaps market had priced in further cuts, but the likelihood of this happening at the MPC’s next meeting in February had been “pegged back”, and the change to the timeline might feed into mortgage rate adjustments.
“Many lenders trimmed their rates in anticipation of today’s decision, as part of a last-ditch effort to grab market share and hit their 2025 lending targets.
“The bank’s decision means the wave of rate cuts we’ve seen in recent weeks may now subside,” he added.
Charles Resnick, chief finance officer at Afin Bank, said the Bank of England was “walking a tightrope” and “cautious not to ease policy too quickly while domestic cost pressures persist”.
Resnick said while the base rate cut was not a surprise, it “could have easily gone the other way, with interest rates left unchanged”.
He added: “Mortgage lenders are expected to remain disciplined, reflecting ongoing uncertainty around the pace of further cuts given the MPC’s emphasis on a cautious, data-dependent easing cycle.”
Frances Haque, chief economist at Santander UK, said: “Moving into 2026, further cuts are likely – assuming inflation and wage growth meet the Bank of England’s expectations.
“Although, the timing of those cuts remains uncertain and will depend on the loosening of the labour market, economic growth prospects, as well as the MPC’s collective view on whether bank rate is above or below the so-called ‘neutral’ rate. As we move closer to the neutral range next year, the evidence required for further cuts will become stronger.”
More confidence and market stability
Although the decision was narrow, it was believed that the cut would still stabilise the market and encourage activity, while benefitting those due to remortgage.
Rob Clifford, chief executive of Stonebridge, said the cut was a sign of confidence that the “inflation threat is easing as hoped”.
Clifford added: “This cut is as much about kick-starting activity as it is about recognising progress on inflation. The bank will still move cautiously, and we’re unlikely to see a rapid run of cuts, but the direction of travel is now clear. On current trends, we expect two further reductions in 2026.
“For the mortgage market, today’s decision to reduce to 3.75%, the lowest level in nearly three years, provides fresh and real momentum. Many lenders had already been cutting rates and launching really attractive deals in anticipation, and this cut will keep that trend going. Competition will intensify, putting further downward pressure on pricing as the impact of today’s move feeds through.”
Mark Harris, chief executive of SPF Private Clients, said: “This news will add to the festive cheer borrowers are already experiencing with lenders cutting mortgage rates, keen to attract business and get 2026 off to a strong start.
“With some lenders repricing on a weekly basis, it is now possible to access a short-term fix at just over 3.5%. Given how relatively quiet activity is with the usual pre-Christmas lull, we would expect to see rates dip below that level in late December or early January. It might take a little longer for five-year fixes to breach the 3.5% barrier, but it could happen in the new year, with rates currently at just over 3.7%.”
Sarah Thompson, group financial services director at Mortgage Scout, part of LRG, said: “The Bank of England has now confirmed what the mortgage market has been moving towards for months: a reduction in the base rate, and a return to more stable ground.”
Thompson said the cut would not take rates back to where they were before they first started to rise, but “does mark a clear shift in tone”.
She said those refinancing off ultra-low fixed rates next year would still see their repayments rise, but the “cut softens the landing”.
“Just as importantly, it sends a signal to buyers who have been holding back – the market is stabilising. Combined with greater product choice and rising lender competition, this should give people more confidence to move, refinance, or step onto the ladder, helping unlock demand and support a healthier, more active sales market in 2026,” she added.
Matt Smith, mortgages expert at Rightmove, said not to expect any “big rate drops” before Christmas and while the market was quiet, but “we could now see a fresh round of rate cuts in the new year as lenders look to start the new year with a bang”.
