Bank of England Cuts Base Rate to 3.75% in December 2025: A Christmas Boost for Borrowers

On 18 December 2025, the Bank of England's Monetary Policy Committee (MPC) voted 5-4 to reduce the base interest rate by 0.25 percentage points, bringing it down from 4.00% to 3.75%. The decision marks the third rate cut in the current easing cycle and delivers a welcome Christmas present to millions of UK mortgage holders heading into the new year.

The base rate has now fallen steadily throughout 2025, dropping from 4.50% in February to 4.25% in May, then to 4.00% in August, and now to 3.75% in December. At this level, the base rate stands at its lowest point since late 2023, signalling a clear shift in the Bank's approach as it pivots from battling inflation to supporting a slowing economy.

Why Did the MPC Cut Rates Again?

The relatively narrow 5-4 vote reflected an ongoing debate within the committee about the pace of easing. However, the majority were swayed by several key economic indicators. CPI inflation eased to 3.2% in November, down from 3.6% in October, continuing a gradual decline toward the Bank's 2% target. While inflation remains above target, the trajectory gave the committee enough confidence to proceed with further loosening.

Beyond the headline inflation figure, the MPC cited weakening economic activity across several sectors and a cooling jobs market as justification for the cut. Employment growth has stalled in recent months, with vacancy numbers declining and wage growth moderating. The committee judged that maintaining rates at 4.00% risked tipping the economy into a sharper downturn, and that a measured reduction was appropriate to support households and businesses through the winter months.

What This Means for Mortgage Holders

The impact of this latest cut depends on the type of mortgage you hold, but the cumulative effect of three rate cuts in 2025 has been significant for many borrowers.

• Tracker Mortgages: Borrowers on tracker deals benefited immediately from the reduction. Over the course of 2025, monthly payments on a typical £200,000 repayment mortgage are now around £55-60 lower than they were when the base rate stood at 4.50% at the start of the year. This represents a meaningful saving of roughly £660-720 annually.
• Variable Rate Mortgages: Those on standard variable rates (SVRs) should also see reductions, though lenders have discretion over how much of the cut they pass on. Most major lenders confirmed they would reduce SVRs in line with the full 0.25% reduction.
• Fixed Rate Mortgages: While existing fixed-rate borrowers will not see an immediate change to their monthly payments, the wider market has responded positively. Some 2-year fixed rate deals are now available below 4.50%, while competitive 5-year fixes can be found below 4.30%. The average 2-year fixed rate has fallen from 5.48% at the start of 2025 to around 4.83% by year-end, a substantial improvement for those coming off older fixed deals.

For borrowers whose fixed-rate terms are expiring, the current market represents a considerably better landscape than this time last year. Those who locked in at higher rates during 2023 or early 2024 may find that remortgaging now could deliver significant monthly savings.

Lenders Launch Competitive Christmas Deals

Major lenders wasted no time responding to the December cut. The mortgage market saw the widest choice of products in years as banks and building societies competed aggressively for new business. Several high-street lenders launched special Christmas deals with reduced arrangement fees and cashback incentives to attract borrowers looking to switch.

The competition has been particularly fierce in the remortgage market. Industry estimates suggest that up to 1.8 million homeowners are expected to renew or switch their mortgage deals in 2026, representing a huge pool of potential customers. Lenders have been positioning themselves to capture this business with increasingly attractive rates and flexible terms, making the coming months an excellent time to shop around.

Looking Ahead to 2026

With three cuts now delivered in 2025, the key question is how much further rates will fall. Financial markets are currently pricing in further reductions during 2026, with some analysts predicting the base rate could reach 3.25% to 3.50% by mid-2026 if inflation continues to moderate and economic conditions warrant additional support.

However, the Bank has been careful to emphasise that future decisions will remain data-dependent. Persistent inflation above target, any unexpected economic shocks, or a sudden recovery in growth could all influence the pace and direction of future rate moves. The relatively close 5-4 vote in December suggests that the committee remains divided, and borrowers should not assume that further cuts are guaranteed.

For homeowners and prospective buyers, the current environment presents genuine opportunities. Whether you are considering a new purchase, looking to remortgage, or simply reviewing your financial position, taking the time to compare deals and seek professional advice could pay dividends in 2026.

Related: Previous Cut: Bank of England Reduces Base Rate to 4.25% in May 2025