Bank of England Cuts Base Rate to 3.75% (December Meeting)

What the Bank of England announced

The Bank of England has officially reduced the base rate to 3.75%, following a closely split vote by the Monetary Policy Committee (MPC). The decision reflects growing concern over weakening economic data, easing inflation, and a softening labour market.

The cut follows November inflation falling to 3.2%, below expectations, alongside rising unemployment and slowing wage growth. It’s the first rate reduction since the tightening cycle began and signals a potential shift towards looser monetary policy in 2026.

Why the base rate was cut

The MPC pointed to several factors behind the decision:

• Inflation easing faster than forecast, down from 3.6% to 3.2%

• Unemployment rising to 5.1%, a four-year high

• Weak economic growth, with GDP contracting for a fourth consecutive month

• Private sector wage growth slowing to its lowest level since 2020

Governor Andrew Bailey is understood to have supported the cut amid concerns that keeping rates higher for longer could deepen economic stress.

What this means for savers

For savers, this rate cut increases the likelihood that top savings rates will start to edge down in early 2026 — particularly easy-access and variable accounts that closely track the base rate.

However, competition among banks remains strong, and many savings providers are still offering above-market rates, especially for fixed-term accounts and limited-time bonuses.

👉 DepositScout tip: If you’re holding a large cash balance, it may be worth reviewing fixed-rate savings now before further cuts are priced in.

What this means for borrowers

Borrowers are likely to feel the impact more gradually:

• Tracker mortgages should see an immediate reduction in monthly payments

• Variable-rate mortgages may follow, depending on lender decisions

• Fixed-rate mortgage pricing may improve further if markets price in additional cuts

Money markets are now increasingly expecting further rate reductions in 2026, though the Bank has stressed future decisions remain data-dependent.

What happens next?

While today’s cut brings welcome relief for borrowers, inflation remains above the Bank’s 2% target, meaning policymakers are unlikely to move aggressively.

Most economists expect a slow, cautious easing cycle, with rates potentially falling toward 3.0% over the course of 2026 if inflation and employment continue to weaken.