- The Bank of England cut UK interest rates in December 2025 to their lowest level in almost three years, in an attempt to stimulate the economy.
- In light of the weakening jobs market and falling inflation, the central bank lowered interest rates from 4% to 3.75%, in a move that was widely expected.
- The Bank’s Monetary Policy Committee voted 5-4 to lower rates by a quarter point, with four members voting to hold interest rates at 4%, pointing to continued concerns about inflation.
- The cut came in a week that saw the UK unemployment rate hit its highest in almost five years, while inflation figures for November fell lower than expected to 3.2%.
- At its previous meeting on 6 November 2025, the MPC held interest rates at 4%. That decision was also a narrow one, with the vote split 5-4 in favour of a hold, vs cutting interest rates to 3.75%.
- Minutes of the December meeting indicate that these knife-edge decisions look set to continue. The Bank’s governor Andrew Bailey said:
“We’ve passed the recent peak in inflation and it has continued to fall, so we have cut interest rates for the sixth time, to 3.75% today. We still think rates are on a gradual path downward. But with every cut we make, how much further we go becomes a closer call.”
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Will the Bank of England cut interest rates on 5 February?
Some analysts are predicting that another interest rate cut is possible on 5 February, however others are expecting the Bank of England won’t cut rates again until its March MPC meeting.
Interest rate predictions
Following the decision to cut interest rates in December 2025, we look at analysts’ interest rate predictions for 2026.
- Money markets are predicting two interest rate cuts in 2026, lowering interest rates to 3.25%, with the possibility of a third.
- ING predicts two cuts in the first half of 2026. ING’s UK economist James Smith said “We narrowly expect another cut in February, but it’s a close call. There’s only one more round of inflation and wage/jobs data before then, suggesting the views of the committee won’t shift enormously over the next eight weeks.
- If it’s not February, then we think it’ll be March. Fundamentally, the UK should look like much less of an inflation outlier next year. Headline CPI should be very close to 2% by May – maybe even below. That’s why we expect another cut in the second quarter, leaving the Bank Rate at 3.25% thereafter.
- Deutsche Bank’s chief UK economist Sanjay Raja, told clients: “We stick to our long-standing call of two more rate cuts in 2026: one in March, and one in June, taking Bank Rate to 3.25%. Risks are skewed to a slower but deeper easing cycle.“
- Jack Meaning, chief UK economist at Barclays, expects another 0.25 percentage point cut to the Bank rate in March.
- JP Morgan predicts two more cuts in 2026, in March and June, bringing the base rate down to 3.25%.
- HSBC’s interest rate prediction is that the base rate will fall to 3% by the end of 2026.
However, what happens with interest rates in 2026 will depend on numerous factors.
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Latest Bank of England base rate news
The Bank of England cut interest rates in December from 4% to 3.75%, with five MPC members voting for a cut, while four favoured a hold. Both the decision to cut rates and the fact it was a narrow vote were widely predicted.
Prior to December, the most recent interest rate cut was on 7 August, when the bank cut interest rates from 4.25% to 4%, which was then the fifth interest rate cut in a year. The decision was narrowly passed by a 5–4 split vote, with one member initially pushing for a larger 0.5 percentage‑point reduction. The result was a much closer call than predicted.
That move followed cuts in May 2025, February 2025, November 2024 and August 2024, when the base rate was first cut from 5.25%.
What are interest rates and why do they change?
- The Bank of England’s base rate acts as a benchmark for the cost of borrowing money. As a general rule, when interest rates increase, so does the cost of borrowing on mortgages and other types of borrowing.
- One major reason why the Bank moves rates up and down is to help control inflation. When inflation is high, the bank may increase interest rates to try to bring it down by encouraging people to spend less and reduce demand. And once inflation is at or near its target, the Bank may hold or cut interest rates.
- However, the Bank’s Monetary Policy Committee will assess a range of factors when deciding whether to cut interest rates including job and wages data and external factors that can impact the economy.
What’s happening with inflation?
- Official government figures released in November 2025 showed that CPI inflation in November fell to 3.2%, from the reading of 3.6% for October. This was a bigger fall than expected; City economists had forecast a modest drop to 3.5%.
- CPIH, which includes owner‑occupiers’ housing costs, stood at 3.5%, while RPI inflation came in at 3.8%.
- The OBR said in its economic and fiscal outlook for November 2025 that it expects consumer price index (CPI) inflation to average 3.5% in 2025, up from its forecast of 3.2% in March.
- It then expects CPI inflation to average 2.5% in 2026 – higher than its previous forecast of 2.1% – but anticipates it to fall to an average of 2% in 2027.
When is the Bank of England’s Monetary Policy Committee’s next meeting?
The next Bank of England Monetary Policy Committee meeting is on 5 February 2026. Its subsequent meetings are on 19 March 2026 and 30 April 2026. The Bank of England publishes a calendar of future committee meeting dates here.
How do interest rates affect mortgages, loans and savings rates
How changes in interest rates affect your mortgage
Falling interest rates usually means mortgage rates fall too. Stay up to date with our guide to Mortgage rate predictions.
However, how changes in interest rates affect your mortgage depends on your circumstances:
- You’re taking out a new mortgage: If you’re shopping around for a new mortgage or want to remortgage, the mortgage rates available should improve if interest rates fall, although this isn’t guaranteed. So make sure you shop around. For the cheapest mortgage rates read our guide to the Best mortgage rates.
- If you’re on a fixed rate mortgage the amount you’ll pay on your monthly mortgage payments will stay the same during your initial term – usually 2 or 5 years. So your mortgage payments won’t change if interest rates go up or down.
- You have a tracker mortgage: If you’re one of the estimated 600,000 households on a tracker mortgage deal and interest rates are cut, your mortgage payments will fall as the rate you pay on your mortgage rises and falls in line with the Bank of England base rate.
- If you’re on a discounted variable rate, you’ll pay a rate that’s lower than the lender’s Standard Variable Rate. If your lender decides to pass on the cut in interest rates, your mortgage payments will fall. But it won’t necessarily pass on all or any of the cut.
- You’re on your lender’s Standard variable rate (SVR): According to UK Finance, there are around 1.1 million households on their lender’s standard variable rate. If this includes you and your lender decides to reduce its SVR if interest rates fall, the amount you’ll pay will fall. But the lender may not pass on all or any of an interest rate cut. Lenders’ SVRs can be extremely expensive, so check your deal now to see if you can save by remortgaging.
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Interest rate changes’ impact on credit cards and loans
Other types of borrowing are affected in a similar way. If interest rates go up, borrowing of any type generally gets more expensive, while when interest rates are cut, borrowing generally gets cheaper. However, this is in general terms as the amount you’ll pay on things like credit cards and loans will depend on a number of factors including your credit history.
November 24, 2025 
