At its meeting ending on 17 December 2025, the Monetary Policy Committee voted by a majority of five to four in favour of a rate cut, with four members preferring to keep Bank Rate unchanged at 4%.

The close decision underlines the degree of uncertainty still surrounding the inflation path and the strength of domestic demand.

CPI inflation has fallen since the previous meeting to 3.2%. While this remains above the 2% target, the Bank now expects inflation to return towards target more quickly in the near term. Evidence of subdued economic growth and increasing slack in the labour market has been accompanied by easing pay growth and softer services price inflation.

The Bank said monetary policy continues to be set to ensure inflation settles sustainably at 2% over the medium term. Although the risk of persistent inflation has diminished somewhat since the last meeting, policymakers noted that weaker demand now poses a greater threat to the outlook.

The MPC stressed that further easing is not pre-determined. Bank Rate has already been reduced by 150 basis points since August 2024, lowering the overall restrictiveness of policy. While rates are expected to follow a gradual downward path, future decisions are likely to be more finely judged.

INDUSTRY REACTION

Rob Clifford, chief executive of Stonebridge, said: “The Bank of England’s decision to cut rates again today shows growing confidence that the inflation threat is easing as hoped.

“Price pressures are coming down faster than expected, and wage growth is slowing, giving the Monetary Policy Committee room to start supporting an economy that has lost momentum.

“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 brokers, this is the moment to re-engage clients.”

“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.

“For brokers, this is the moment to re-engage clients approaching the end of existing mortgage deals. Falling rates can encourage borrowers to sit on their hands, but proactive advice now will help them secure the right deal in a market that is evolving.”

NO SURPRISE

Steve Cox, chief commercial office at buy-to-let lender Fleet Mortgages, said: “The Bank’s decision to cut Bank Base Rate today will come as little surprise given recent market sentiment and the broader economic signals pointing in this direction.

“In many ways, a number of lenders have been ahead of this particular curve having been actively pricing it into products.

“We’ve seen a flurry of mortgage rate cuts across the residential and buy-to-let sectors over the last week or so perhaps in anticipation of this decision and in an attempt to grow volume and pipeline as we move into 2026.

“In the buy-to-let space, product pricing continues to improve, supported not just by this rate change, but by swaps which are increasingly aligned with the view that further cuts could follow into 2026.

“For landlords, this is a positive way to end the year.”

“For landlords, this is a positive way to end the year, and a promising start to 2026. With greater certainty following the Autumn Statement – including clarity on tax changes that won’t bite until April 2027 — and with the Renters’ Rights Act coming into force next year, any opportunity to reduce monthly mortgage costs will be welcomed.

“Landlords coming to the end of two-year deals in particular will find a much more competitive rate environment than they did in 2023 or early 2024, and this should support renewed purchase and refinance activity in the months ahead.”

FESTIVE CHEER

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “A cut in base rate was a dead cert after the recent inflation figures, which while still above the Bank’s 2% target, are moving in the right direction.

“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%.

“Market expectations are for another two or three base rate reductions in the new year.”

“Market expectations are for another two or three base rate reductions in the new year. This will provide a welcome shot in the arm for the housing market now which suffered from pre-Budget speculation over property taxes which on the whole were not as bad as many feared.”

SECTOR BOOST

Kris Brewster, retail director at LHV Bank, said: “As CPI inflation dropped to a lower than expected 3.2% yesterday, the lowest number for eight years, this opened the door for the MPC to vote in favour of a cut to 3.75%.

“This will be a boost for the property and mortgage markets before the start of a new year as loans potentially become more affordable, but savers face a bigger battle to protect their incomes and spending power in the face of frozen income tax thresholds and the higher cost of living overall.”

GROWTH POTENTIAL

Joe Pepper, UK chief executive officer at PEXA, said: “The Bank of England’s decision to reduce the base rate signals promising potential for growth in the UK property sector.

“It’ll be a welcome early Christmas present for those waiting for a reduction in borrowing costs to secure a mortgage or those looking to remortgage as they approach the end of their fixed term.

“But despite the benefit of decreasing borrowing costs and declining asking prices to prospective homeowners, the resulting uptick in home buying activity will undoubtedly add significant pressure on conveyancers and lenders, increasing the risk of delays across the transaction chain.

“This will come to a head in January, a time in which conveyancers already see an uptick in instructions. It will simply pour petrol on the fire, and the back-end infrastructure that supports conveyancers will implode.

“We must take collective and collaborative action to prevent this, addressing current weaknesses in the system if we have any hope of meaningful change and delivering certain and secure transactions for all.”

CONFIDENCE BUILDER

Jonathan Samuels, CEO of Octane Capital, said: “The Bank of England’s decision to cut the base rate is a welcome step and one that should help reinforce confidence across the wider economy.

“With inflation having stabilised in recent months, this move provides some much-needed relief for households and businesses alike, helping to ease pressure on borrowing costs and support spending and investment decisions.

“While the reduction itself is modest, it sends an important signal that monetary policy is beginning to shift in a more supportive direction and, for the property sector, this cut should help build on the stability we have seen throughout the year.”

TAKING BETS

Lee Trett, director and co-founder of Echo Finance, said: “A base rate reduction of 0.25% is exactly what we were expecting, and what we have been planning for. I imagine this was the case for most of the industry, from lenders to brokers.

“We have seen an uptick in mortgage applications and other business of late, and while a Christmas slowdown is setting in, I believe this rates cut will help things shoot back up again in the New Year.

“We are planning for a big January and I think market confidence is markedly higher than it was this time last year.

“I’d also put my money on another base rate reduction in January as several of the conditions – particularly inflation levels – the central bank needs to usher in further cuts seem to be aligning, for the time being, at least.”

BALANCING TIGHTROPE

Charles Resnick, chief finance officer at Afin Bank, said: “The Bank of England is walking a bit of a tightrope at the moment, balancing its aim of returning inflation sustainably to its 2% target, below the current rate of 3.6%, while being cautious not to ease policy too quickly while domestic cost pressures persist.

 “Although today’s cut to the Base Rate was not a surprise, it could easily have gone the other way with interest rates left unchanged.

“You only have to look at the last MPC meeting in November, when the vote was 5-4 in favour of keeping the rate flat, to see there is a difference of opinion within the committee. The minutes from today’s meeting will be interesting.

“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.”

STABLE GROUND

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.

“This time last year, interest rates were starting to come down from their historical highs. Which meant mortgage affordability was under immense pressure, and buyer confidence had taken a hit. Throughout 2025, we’ve seen a steady improvement in financial conditions.

“Swap rates have eased, lenders have re-entered the market with sharper pricing, and affordability criteria have been relaxed. Today’s decision reinforces that momentum.

“It won’t bring rates back to where they were before rates began rising, but it does mark a clear shift in tone.”

“It won’t bring rates back to where they were before rates began rising, but it does mark a clear shift in tone.

“And that matters, particularly for the thousands of borrowers whose ultra-low fixed rates expire in 2026. While their repayments will still increase, today’s 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.”

WELCOME NEWS

Marylen Edwards, director of mortgages at specialist lender MT Finance, said: “Today’s decision by the MPC to cut rates will be welcomed by borrowers.

“After interest rates were cut by the US Federal Reserve last week, it seemed inevitable that the Bank of England would follow suit, particularly after inflation fell in November.

“We are hopeful that this move will instil some confidence into the market, and we will start to see more landlords, as well as owner-occupiers, transact in the New Year.”

EARLY PRESENT

Claire Van der Zant, CEO of Novus Strategy, said: “It wasn’t exactly a surprise but this is one present the housing market gets to unwrap early.

“This is the sixth cut in 18 months, pulling the base rate down to a three-year low and finally returning the economy and housing market to the Goldilocks zone that will spur buyer demand next year.

“Sales volumes haven’t set the world on fire in 2025 but greater confidence in improving affordability should translate into higher demand, increased transactions and fewer fall-throughs.

“If volumes do pick up, then 2026 is going to be a fascinating year.”

“If volumes do pick up, then 2026 is going to be a fascinating year because we’ll get to find out how many buyers were biding their time as they watched the gap between borrowing costs and the Bank’s 2% target remain stubbornly wide.

“It will also come just as the residential market embarks on a period of transformation powered by Horizontal Digital Integration.

“So you’ll see rising volumes against a backdrop of tighter lender margins and a growing clamour from consumers for easier, digital customer journeys. The stage is set for 2026 to be a make or break year for digital transformation in the homebuying space.”

CONFIDENCE BOOST

Ben Thompson, deputy CEO at Mortgage Advice Bureau, said: “The much-anticipated final base rate cut of the year is the strongest signal yet that the government’s commitment to taming inflation and stabilising the economy is paying off.

“This latest move from the Bank of England – in addition to yesterday’s news that inflation has fallen to 3.2% – should give us all a much-needed boost of confidence to plan for the year ahead.”

SHOP AROUND

Clare Moffat, finance expert at Royal London, said: “The Bank of England’s decision to reduce the base rate to 3.75% will be welcome news for many households, particularly at this expensive time of year.

“Christmas spending adds extra pressure, and our Financial Resilience Report shows that one in ten people are already struggling to pay household bills.

“Financial pressures remain high, and for savers, lower rates could mean reduced returns on cash savings.

“It’s essential that savers shop around to see if there is a better rate available. Building resilience through budgeting, maintaining an emergency fund, and seeking advice on long-term planning remains crucial.

“For those nearing retirement, consider that lower interest rates might affect annuity rates and income planning – and don’t delay reviewing your pension strategy to ensure it aligns with your goals.”

GREATER BORROWING POTENTIAL

Richard Pike, chief sales and marketing officer at Phoebus Software, said: “The Bank of England has delivered an early Christmas present for homeowners with its decision to cut the base rate, the fourth reduction this year.

“The decision was widely expected, particularly considering yesterday’s fall in inflation, and we’ve seen mortgage rates reducing in the past few weeks in anticipation of the announcement.

“This will help alleviate affordability pressures for households and unlock greater borrowing potential and support increased mortgage activity – providing a much-need boost for the market.

“The base rate is now at its lowest level since early 2023, and we can expect to see the rate continue downwards throughout 2026 as price pressures continue to ease, although the Bank will continue to adopt a careful and gradual approach in the light of continuing economic pressures.”

MOMENTUM DRIVER

Simon Gammon, managing partner, Knight Frank Finance, said: “Lenders have been trimming mortgage rates for several weeks, but today’s decision adds momentum to what we expect to be a highly competitive January.

“With new lending targets in place, lenders are likely to undercut one another in a bid to win early-year business. It’s not impossible that we see two-year fixed rates below 3% by spring.”

PROMISING SIGNS

John Phillips, CEO of Just Mortgages and Spicerhaart, said: “The central bank has delivered a festive boost for borrowers, confirming a rate cut a week before Christmas.

“Given the timing, we may not see an instant reaction from potential buyers or movers, but combined with the positive news on inflation yesterday, it will certainly go a long way in boosting confidence and encouraging more clients to get their plans back on track.

“With Boxing Day always busy for property searches, we could certainly be in for a positive start to the new year.

“Now is absolutely the time for brokers to be communicating these positive headlines to borrowers and reminding potential buyers and movers of everything the mortgage market has to offer – particularly recent activity from lenders on rates and criteria.

“While the signs look promising, a new year bounce is far from a given. We have to play our part in achieving this by educating clients, nurturing confidence and facilitating transactions.”

GRADUAL IMPROVEMENT

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “This cut is not a great surprise given the news that has come out this week which isn’t all good for the economy.

“The encouraging news is that the housing market has been relatively resilient despite many concerns about the contents of the Budget, which turned out not to be as bad as anticipated.

“We don’t expect fireworks after the new year.”

“We don’t expect fireworks after the new year but now interest rates are a little lower, we do expect a gradual improvement with property price increases tempered by continuing concerns about the economy and the amount of choice available.

“Many of our customers have been sitting on their hands, not knowing which way to turn but they haven’t withdrawn from the market altogether. Many are now saying since the Budget – ‘why not?’ rather than ‘why?’, which is what they were saying previously.”

INCREASED ACTIVITY

Tony Hall, head of business development at Saffron for Intermediaries, said: “This marks the first base rate cut since August and brings borrowing costs down to their lowest level in three years.

“While the Autumn Budget introduced a degree of uncertainty, inflation is easing, even if it remains above the Bank of England’s 2% target.

“Looking beyond Christmas and into 2026, a base rate below 4% should provide welcome momentum for confidence and activity across the housing market.”

BUYER BOOST

Richard Merrett, managing director of Alexander Hall, said: “We’ve seen inflation heading in the right direction in recent months, and today’s decision to cut interest rates to 3.75% reflects this growing confidence, with the base rate falling below 4% for the first time since February 2023.

“This will help to further boost a mortgage sector that has already seen marked improvements over the last year, irrespective of the headline rate, with lenders broadening criteria, widening affordability options, and supporting higher LTV borrowing.

“Today’s cut will only strengthen this trend, providing buyers with an additional boost at a time when confidence is already returning and the direction of travel remains positive as we head towards the new year.”

NOT OUT THE WOODS YET

Andrew Gething, managing director of MorganAsh, said: “The positive news continues this week with falling inflation, followed by a cut to the base rate.

“This will be welcomed by new borrowers and those set to remortgage, while bringing relief to those on variable and tracker rates.

“While the picture is certainly improving and the signs look good, we’re not out of the woods yet. Financial pressures on households remain high and customer vulnerability will continue to be a significant and growing issue.

“Rather than thinking this positive news means that the job is done, firms should respond by making sure they are aware of the challenges of their vulnerable customers.

“To do so, they must identify who these customers are, understand what outcomes they are receiving and determine how best they can be supported.

“New customer vulnerability guidance released by the CII and PFS gives all financial services firms the ultimate playbook for achieving this and supports firms in making sure that they have the necessary IT systems, processes and data infrastructure for customer vulnerability management.”

DEMAND REMAINS HIGH

Nick Hale, CEO at Movera, said: “The decision to cut the base rate has been widely anticipated and will provide a shot in the arm for the housing market.

“We’re already seeing lenders reducing their rates, increasing affordability for borrowers, and I expect this to be the springboard for a busy 2026 in the mortgage market.

“Despite the challenging economic environment, buyer demand remains high and this will also stimulate the remortgage market.

“With transactions on the rise, our job is to make sure that we’re ready to continue to support home movers and our partners with digitally transformed and streamlined case progression, where service quality with a personal touch is key – in a market that’s gearing up for growth.”

BREATHING SPACE

Simon Webb, managing director of capital markets and finance at LiveMore, said: “Today’s base rate cut will provide welcome breathing space for many older borrowers, particularly those on variable rate or tracker products.

“The Autumn Budget announcement included a number of changes that will disproportionately affect many older homeowners, especially those who are asset-rich, but cash-poor.

“Falling interest rates as we head into 2026, will increase affordability for any older borrowers looking to remortgage, as part of the estimated 1.8 million mortgages due to mature next year.”

EASING AFFORDABILITY PRESSURES

Matt Harrison, customer success director at Finova Broker, said: “Affordability looks set to be a big issue for borrowers remortgaging in the next 12 months.

“Although interest rates are generally below 5%, they are far higher now than they were when many borrowers entered their current fixed-rate mortgage deals.

“Today’s cut should go some way to ease that affordability pressure and generate even more competition between lenders to offer the best rates.

“With so many mortgages due to mature next year (1.8 million forecast by UK Finance) there are plenty of deals to be had – lenders should prioritise affordability and trust that further cuts to the base rate will follow in the new year.”

CONFUSED MARKET

George Lagarias, Chief Economist at Forvis Mazars, said: “The 0.25% cut was welcome. Even more welcome, would have been a more unanimous vote.

“Instead, the 5-4 split leaves the markets confused as to when the next cut might come.

“We still expect the Bank of England to pursue further rate cuts, as higher unemployment and stifled growth are hardly a breeding ground for inflation.

“The Bank is, understandably, more conservative, as inflation remains an unpredictable beast.”

GLIMMER OF HOPE

Nick Smith, group managing director at Reward Funding, said: “The Bank of England’s decision to cut the base rate to 3.75% will offer a sigh of relief to businesses as we close the year. But does it support SMEs enough?

“The financial system inches forward incredibly slowly, and ambition shouldn’t have to wait for these types of announcements and businesses often want to move forward much faster.

“The cut is a small glimmer of hope in today’s struggling economy, but the pace of ambition we see every day far outpaces the traditional financial system.

“At Reward, we unlock funding for these ambitious businesses. We make decisions quick and look at the wider business rather than on risk averse algorithms. We urge the MPC to continue this trajectory into 2026, supporting businesses who want to grow and invest.”