Bank of England cuts interest rate to 3.75% as inflation cools
The Bank of England has cut its base rate by 0.25% to 3.75%, following a sharp fall in inflation to 3.2%. The move aims to support the UK economy as growth remains weak, while signalling a cautious approach to further cuts. For borrowers, this could mean lower mortgage and loan costs, while savers may see interest rates start to dip.
The Bank of England has reduced its base interest rate by 0.25%, bringing it down from 4.00% to 3.75%. This move was widely expected and comes as inflation continues to ease, offering some relief for households and businesses.
Yesterday’s data showed inflation falling to 3.2% in November, down from 3.6% in October. Lower prices for food, clothing and tobacco helped drive this drop, giving the Bank confidence to continue loosening its grip on borrowing costs.
What does this mean for you?
Borrowers
If you have a mortgage, especially a tracker or variable-rate deal, you could see your monthly payments fall slightly. For those coming to the end of a fixed-rate term, this cut might mean better deals are available than a few months ago. While the change isn’t huge, it’s a positive step for anyone worried about high borrowing costs.
Savers
Lower interest rates often mean savings accounts become less rewarding. If you rely on interest income, now is a good time to review your options. Some providers may still offer competitive fixed-rate products, but the trend could be downward if more cuts follow.
Investors
Rate cuts can boost confidence in markets because they make borrowing cheaper for businesses and can support economic growth. However, they can also affect returns on cash holdings. If you’re investing for the long term, this shift could be a sign that the Bank of England is prioritising growth over inflation control.
The wider economy
The decision reflects a balancing act: inflation is falling, but growth remains weak. Lower rates should help households and businesses manage costs and encourage spending, which is important to support economic growth.
What happens next?
The big question now isn’t whether rate cuts have begun as they’ve been happening for some time, but how much further the Bank will go. This sixth reduction shows the Bank is sticking to its “gradual and cautious” approach, watching inflation and wage growth closely before making any bold moves. If inflation continues to ease and the economy stays sluggish, more cuts could follow in 2026. But if inflation proves sticky, the pace may slow.
Today’s decision is another step in a longer journey toward easing, after a period of historically high rates. How quickly that journey continues will depend on what the data shows in the months ahead.
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