Bank of England Cuts Base Rate to 3.75% Amid Falling Inflation

Bank of England Reduces Key Interest Rate to 3.75%

The Bank of England's Monetary Policy Committee (MPC) announced on Thursday, December 18, 2025, a reduction in the UK's base interest rate by 0.25 percentage points, bringing it down to 3.75%. This decision marks the fourth rate cut implemented by the central bank during 2025, with the rate falling below 4% for the first time since January 2023.

The move was widely anticipated by market analysts and follows a vote of five to four among the MPC members in favour of the cut, with four members opting to maintain the rate at its previous level of 4%.

Reasons Behind the Rate Adjustment

The primary driver for the Bank of England's decision is the continued decline in inflation. Official data released on December 17 showed that inflation fell to 3.2% in November, down from 3.6% in October. This trend has provided the MPC with increased confidence that inflationary pressures are easing, moving closer to the Bank's long-term target of 2%.

Bank of England Governor, Andrew Bailey, commented on the decision, stating, '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.'

Additionally, signals of subdued economic growth and the need to stimulate the economy contributed to the MPC's decision.

Impact on Borrowers and Lending Institutions

The reduction in the base rate is expected to have a direct impact on various lending products across the United Kingdom:

• Mortgages: Homeowners with tracker mortgages will see their rates decrease by 0.25 percentage points. Those on variable rates are also likely to experience a similar reduction, though the exact amount may vary by lender. Fixed-rate mortgages will remain unchanged until their current term expires.
• Savings: Variable rate savings accounts, particularly easy-access options, are anticipated to see a corresponding drop in interest rates within the coming weeks.
• Loans: Existing fixed-rate loans will be unaffected, while new loan rates may see marginal reductions.

In immediate response to the Bank of England's announcement, specialist bridging lender Somo confirmed it has cut rates across its bridging loan products by 0.25%. This adjustment means first charge bridging rates now start from 0.65%, and second charge pricing has been reduced to 0.69%.

Jade Keval, Sales Director at Somo, welcomed the decision, stating, 'Somo welcomes the Bank of England's rate decision, which will help relieve pressure on borrowers. And with these cuts, Developers, landlords and businesses can access the speed and flexibility we're known at even more affordable rates.'

Future Outlook

While the rate cut provides a pre-Christmas boost to the UK economy, the Bank of England's minutes suggest that the pace of any further rate cuts will be a 'closer call,' depending on the evolution of inflation, particularly in the services sector, and wage growth.