The Bank of England (BoE) has announced a 0.25% cut to its base rate, bringing interest rates down to 3.75%, their lowest level since February 2023.

The latest move marks the sixth time the central bank has cut interest rates since August last year, when it started its cutting cycle from a peak of 5.25%.

At its meeting this week, the nine members on the BoE’s Monetary Policy Committee (MPC) voted by a majority of five to four to reduce the base rate by 0.25%, with four members in favour of maintaining rates at 4%.

The decision to cut the base rate follows yesterday's announcement by the Office for National Statistics (ONS) that inflation had fallen to 3.2% in the year to November, the lowest annual rate since March.

According to the BoE report published today, the MPC is expecting inflation to fall back towards the 2% target “more quickly in the near term”.

“The risk from greater inflation persistence has become somewhat less pronounced since the previous meeting, while the risk to medium-term inflation from weaker demand remains,” the MPC stated.

Deputy CEO at the Mortgage Advice Bureau, Ben Thompson, commented that the final base rate cut of the year is the “strongest signal yet” that the Government’s commitment to taming inflation and stabilising the economy is “paying off”.

“This latest move from the BoE, in addition to yesterday’s news that inflation has fallen to 3.2%, should give us all a much-needed boost of confidence to plan for the year ahead,” Thompson said.

“Whether you’ve been eyeing up your first home or are desperate to move up the ladder, there’s a high chance you’ve been stuck watching from the sidelines waiting for rates to settle down. However, the market has already priced in this stability, and mortgage rates have already been on a gradual downward trend over recent months.”

Looking ahead to next year, chief executive of mortgage broker SPF Private Clients, Mark Harris, said: “Market expectations are for another two or three base rate reductions in the new year. This will provide a welcome shot in the arm for the housing market now which suffered from pre-Budget speculation over property taxes which on the whole were not as bad as many feared.”

However, retirement savings director at Standard Life, Mike Ambery, suggested that “the picture is more challenging” for those looking to save money.

“As rates fall, returns on cash savings will likely drop too, and with inflation still above target, your money could lose value over time,” he added. “It’s sensible to keep some easy-access cash for everyday needs and emergencies, but once that’s covered, relying on cash alone might not be enough.

“Looking at longer-term options – such as pensions, which remain one of the most tax-efficient ways to save, or other investments – can help your money work harder, protect its value, and support your financial security as the interest rate landscape shifts.”

The BoE will announce its first decision on the base rate in 2026 on 5 February.

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