Bank of England Lowers Base Interest Rate to 3.75%

The Bank of England has today (18/12/2025) announced a reduction in the base interest rate from 4.0% to 3.75%, following its latest meeting of the Monetary Policy Committee (MPC).

This decision reflects growing confidence that inflationary pressures are easing, alongside signs that the UK economy has slowed in recent months. 

While inflation remains above the Bank’s long-term target of 2%, official data shows a continued downward trend, which has allowed policymakers to begin cautiously easing monetary policy.

Why the Base Rate Has Been Reduced

Recent figures from the Office for National Statistics show that UK inflation fell to 3.2% in November, down from 3.6% the previous month. Combined with weaker economic growth and a cooling labour market, the MPC judged that a modest reduction in interest rates was appropriate at this stage.

The Bank has been clear that decisions will continue to be driven by economic data, and today’s cut should be viewed as a measured step rather than a significant change in direction.

How the Committee Voted

The MPC’s published minutes show that members held differing views on the pace at which interest rates should be reduced. While some felt that easing inflation justified a cut, others remained cautious given inflation is still above target. 

The outcome of these discussions was a majority decision to lower the base rate by 0.25 percentage points.

What This Means for Individuals

For mortgage holders, those on variable or tracker rates may see a reduction in monthly payments over time, although fixed-rate mortgage holders will not be affected until their current deal ends. 

Savings rates may also gradually move lower, although changes are not always immediate and can vary between providers.

The impact on personal loans and other borrowing will depend on individual lenders and products, but a lower base rate can help ease borrowing costs more generally.

What This Means for Businesses

Businesses with variable-rate borrowing may benefit from slightly lower interest costs, which can help support cashflow and short-term financing needs. However, wider economic conditions and demand will remain key factors in business planning decisions.

Sergiu Moldovan, Mortgage Broker in Harlow, Essex & Grays, Kent said:

 "Today’s base rate reduction to 3.75% is a welcome step for many households and businesses, as it may help reduce borrowing costs and ease financial pressures. However, even a modest change can have different effects depending on individual circumstances, so we always encourage our client to review their mortgages, savings, and financing arrangements with a regulated adviser to understand what this means for them personally."

Please Note: This article is provided for general information only and does not constitute personal financial advice.