The Bank of England has announced a reduction in the UK Bank Rate to 3.75%, cutting it by 0.25%. This decision was made by the Monetary Policy Committee (MPC), whose role is to maintain monetary stability and keep inflation close to its 2% target.
Why has the Bank Rate been cut?
Inflation has fallen significantly from its peak of over 10% three years ago and currently stands at 3.2%. As inflation pressures ease, the MPC has reduced interest rates to support the economy, while continuing to monitor factors such as wage growth and services inflation.
Since August 2024, interest rates have now been cut six times.
What is the Bank Rate?
The Bank Rate is the UK’s core interest rate. It is the rate the Bank of England pays to commercial banks and the rate it charges on loans to them. This, in turn, influences the interest rates banks offer on mortgages, loans, and savings accounts.
When the Bank Rate changes, lenders may adjust their own rates — though this is not guaranteed and will depend on the individual product and lender.
How do interest rates affect mortgages and savings?
- Borrowers: Lower interest rates can reduce the cost of borrowing, potentially leading to lower mortgage payments for some customers, particularly those on variable rates or approaching a remortgage.
- Savers: Savings rates may also change, which can affect the returns earned on savings accounts.
What happens next?
The Bank of England has indicated that interest rates may fall gradually further in the future, but this will depend on how economic conditions develop. The next MPC meeting is scheduled for 5 February 2026.
Need help understanding your options?
Everyone’s situation is different. Whether you are a first-time buyer, moving home, or ready to remortgage, professional guidance can help you understand how market changes relate to your circumstances.
📌 Source: Bank of England
This article is for information only and does not constitute financial advice, this article and the information contained here is correct at date of publishing, 18/12/25.
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