The Bank of England’s Monetary Policy Committee cut the Base Rate to 3.75% today, the fourth cut of 2025, now at its lowest since early 2023. The decision aligns with expectations for a pre-Christmas rate drop, as inflation eases and the UK economy slows.
How We Got Here: The Last Two Years of Rate Movements
Over the past two years, the Base Rate (BBR) peaked at 5.25% in August 2023 and dropped to 4% in August 2025 following cuts in February (4.50%), and May (4.25%).
This change reverses the rapid tightening of 2022–2023, prompted by surging inflation.
Why the MPC Cut Rates Today
The rate cut was driven largely by falling inflation, which slipped to 3.6% in October and unexpectedly to 3.2% in November, increasing the MPC’s confidence that price pressures have peaked.
Additional contributing factors include rising unemployment, which recently reached 5.1% (the highest since January 2021), slowing wage growth in the private sector, subdued business activity, and reduced inflationary risk following the Autumn Budget.
What This Means for Your Mortgages
Today’s cut signals continued monetary easing, but the MPC remains divided. Future changes will depend on economic data.
Most lenders have already factored this BBR cut into their pricing. The move supports positive sentiment for further gradual rate reductions in 2026.
If you plan to buy or remortgage in 2026, this cut brings:
- Gradually improving mortgage affordability for those coming off fixed deals
- Continued competition among lenders, who have already begun trimming rates ahead of the MPC decision
Of course, any of you on BBR tracker mortgages will benefit from a reduction in monthly repayments - a welcome early Christmas present, I’m sure!
Experts Predictions for 2026
Markets currently expect at least one to two further rate cuts in 2026, although the pace is expected to slow significantly compared to the quarterly reductions in 2025. We may even see an increase in BBR back to 4.00% before any further cuts if public sector negotiations or strike action result in an increase in pay awards and cause the private sector to react. This may accelerate inflation by circa 0.4%, necessitating a tighter stance from the MPC.
Analysts caution that the rate-cutting cycle may soon come to an end, with steadier rates expected in 2026. If inflation does fall close to the expected 2.5% by late 2026, rates will stabilise, and the need for further BBR reductions will ease.
Next Steps
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