The Bank of England has cut the base rate by 0.25% to 3.75%, a move that had been widely expected after recent inflation data came in softer than forecast. With price pressures easing and wage growth showing signs of cooling, the BoE now has more breathing room to start dialling back policy.While the cut itself comes as no surprise, the bigger story is what it means for next year. Markets are already looking ahead to 2026, with growing expectations that this could be the start of a more sustained easing cycle.
The Bank’s tone and updated forecasts will be closely watched for any hints that further cuts are on the way. In the meantime, industry professionals have responded to the news of a rate cut:
Royal London’s Clare Moffat, comments:
“The Bank of England’s decision to reduce the base rate to 3.75% will be welcome news for many households, particularly at this expensive time of year. Christmas spending adds extra pressure, and our Financial Resilience Report shows that one in ten people are already struggling to pay household bills.
“Financial pressures remain high, and for savers, lower rates could mean reduced returns on cash savings. It’s essential that savers shop around to see if there is a better rate available. Building resilience through budgeting, maintaining an emergency fund, and seeking advice on long-term planning remains crucial. For those nearing retirement, consider that lower interest rates might affect annuity rates and income planning – and don’t delay reviewing your pension strategy to ensure it aligns with your goals.”
Andrew Zanelli, Head of Technical Engagement at Aberdeen Adviser, said:
“An interest rate cut today was expected and priced in by the market.
Consumers will be divided on whether this is an early Christmas gift or not. Borrowers will be hoping that mortgage rates fall as a result and provide some relief to household finances. On the flip side it’s likely savings rates will fall too which will be detrimental to some consumers.
They may need to reassess their financial plans as a result and this is when professional financial planners and advisers prove their worth. By speaking to an adviser, consumers can not just understand what’s going on but also consider their choices within a longer- term strategy and make sure their money is working as hard as it possibly can.”
Lindsay James, investment strategist at Quilter:
“It should come as no surprise that the Bank of England has cut interest rates today, by a margin of five in favour to four against. Growth is weak, unemployment is rising and, crucially, inflation is falling. This trifecta gives you the ingredients required for an interest rate cut and the Monetary Policy Committee has delivered. While this brings interest rates below 4% once again, the big question going into next year is how much lower can they go? Today’s statement says that ‘judgements around further policy easing will become a closer call’, suggesting that rates may not go down as fast as some may like.
“Inflation is coming down and looks to be supportive to future rate cuts. Measures in the Budget and a slowing labour market would indicate that a lid will be kept on inflation next year. With economic growth also in the doldrums, and showing no sign of improvement in 2026, there will be a huge amount of pressure on the Bank of England to help stimulate some sort of economic activity, even if the fiscal picture looks anaemic.
“There is a chance the UK slips into a recession in 2026 given the weak growth we saw in September and October. November’s data is likely to be similar and it doesn’t feel like it would take a lot for a recession to be triggered. However, the market is pricing in just a further two cuts by the end of next year, which would suggest the UK isn’t out of its inflationary pickle just yet, especially as wage pressures remain ever prevalent.
“Ultimately, there is little going right for the UK economy as Christmas approaches. While manufacturing has rebounded, services has slowed, and construction remains a significant drag on the economy. The government is facing a crunch year in 2026 and if it can’t find economic growth from somewhere then it is likely to run out of road. The BoE will cut when it can, as it has today, but given the UK’s inflation problem, it can’t keep cutting to magic up some growth.”
Luke Bartholomew, Deputy Chief Economist at Aberdeen Investments, said:
“Given the run of softer inflation data, weaker labour market, and disappointing GDP growth recently, the cut today was widely expected. But the fact that the vote was so close suggests that many policymakers are still not convinced that the economy is fully out of the woods yet when it comes to inflation. However, with the economy set to remain weak into next year, and various measures in the recent Budget designed to push down on headline inflation, we think there are more rate cuts to come, with Bank Rate eventually heading back towards 3% late next year.”
Hetal Mehta, Chief Economist at St. James’s Place comments following the Bank of England interest rate decision:
“While it was widely expected that the Bank of England would deliver a 25bp cut in interest rates to 3.75%, it was another finely balanced decision.
“The bar for cutting rates had been incrementally lowered with the recent raft of data releases painting a gloomy picture of the UK economy. It’s therefore somewhat surprising to see the vote split remain unchanged.
“Recent data confirm the direction of travel the Bank is likely to pursue, but the magnitude and pace of cuts in the coming months is still very much up for debate. The Bank now has a delicate balancing act to negotiate. Inflation is above target and wage growth above 4% meaning that an aggressive cutting cycle – several back-to-back cuts or even 50bps cuts – could risk an inflation reversal. On the other hand, pulling further on the monetary string may well choke off what little economic growth there is.”
Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group, said:
“The Bank’s decision to cut interest rates to 3.75% will be welcome news for borrowers, taking the base rate to its lowest level in three years. While still a close vote, the move reflects a combination of easing inflation at home, softer pay growth and a broader shift among central banks globally. Last week’s rate cut by the US Federal Reserve has added to the sense that the peak in interest rates is behind us, giving the Bank of England greater confidence to begin easing policy – albeit cautiously.
“For households, the immediate impact will be felt most clearly by borrowers. Those on variable rates or approaching the end of a fixed mortgage or loan deal should start to see some relief as lenders gradually pass on lower rates. That said, further cuts aren’t guaranteed to come quickly. With policymakers signalling caution about how far and how fast rates can fall, this is a sensible moment for borrowers to review their options and make sure they’re on a deal that suits their circumstances.
“For savers, the picture is more challenging. As rates fall, returns on cash savings will likely drop too, and with inflation still above target, your money could lose value over time. 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.”
Adam Ruddle, Chief Investment Officer at LV=, said:
“Weaker-than-expected economic growth, which was intensified by the recent UK Budget, meant that a December rate cut by the Bank of England was widely anticipated.While inflation remains above the 2% target, it has recently fallen more than expected, which suggests that, compounded by rising unemployment and a strained economic outlook, we can look forward to further rate reductions over 2026.
“Ahead of Christmas, this reduction will offer relief to households under financial strain, with LV’s latest Wealth and Wellbeing research showing two in five people are worried about the future and more than a third report anxiety about rising everyday costs and energy bills.
“For many, this cut is a welcome lifeline during a challenging festive season.”
Richard Carter, head of fixed interest research at Quilter Cheviot:
“Today’s long awaited US CPI print has come in cooler than had been expected. While headline and core inflation each rose by 0.2% in the two months from September to November 2025, the annual rates fell considerably. The headline rate for the 12 months to November fell to 2.7%, down from 3.0% in the 12 months to September, while core inflation dropped to 2.6% from 3.1%.
“With no October comparator, as well as the delay to November’s data collection due to the prolonged government shutdown, today’s figures will need to be taken with a pinch of salt. Regardless, the data out this week will paint the clearest picture of the economy we’ve had for several months and will be key to the Federal Reserve’s decision making in the coming months.
“Jobs data out earlier this week saw heavily subdued payrolls numbers and an uptick in unemployment to 4.6%, and GDP data due out next Tuesday will show how the economy is faring. While current expectations are for just one or two rate cuts in 2026 given the majority of FOMC members appear comfortable that interest rates are close to a ‘neutral’ level, should data projections change then they may be forced to reassess.
“As we move into 2026, all eyes will be on the dynamics of the FOMC – particularly with Trump piling on the pressure for more cuts. With the president determined to appoint a chair who follows his lead on pushing for lower interest rates, markets will be on high alert for any erosion of Fed independence.”
Kevin Brown, savings expert at Scottish Friendly, has commented:
“The Bank of England’s decision to deliver a pre-Christmas rate cut is a sign not only that it feels like it’s winning the fight against inflation, but also that it needs to ride to the economy’s rescue.
“Slowing wage growth and a bigger-than-expected fall in inflation have clearly led the Monetary Policy Committee to conclude that it could reduce borrowing costs further without risking a resurgence in inflation.
“Although the Bank will continue to remain cautious, we’re likely to see another two cuts by next summer. That is positive news for the economy, but it should put savers on red alert.
“Following today’s cut, it won’t be long before providers reduce their best savings deals, so anyone holding cash may want to consider acting quickly to secure the most competitive rates before they disappear.
“However, in a lower-rate environment, savers should consider whether cash remains the best long-term home for their money.
“For those seeking the potential for greater long-term returns, investing is likely a better option, especially for anyone looking to outpace inflation and preserve or increase their purchasing power over time.”
Emma Wall, Chief Investment Strategist, Hargreaves Lansdown, commented:
“The Bank of England Monetary Policy Committee has cut interest rates to 3.75% from 4% in a move that surprised no one. The rate cut was all but nailed on yesterday thanks to inflation data which showed price growth slowed to 3.2% for November, down from 3.6% the previous month. Weak growth data last week that showed four months of GDP contraction to the end of October would have been another green light to the rate doves.
What has surprised markets is how tight the vote was however, making the path from here far less certain. While inflation is falling, it is still far above the Bank target of 2%, and the MPC voting record revealed that four members favoured a hold today – likely because of these pricing concerns. Bank Governor Bailey has long drummed that decisions will be data led, and it is interesting to see this in action – jobs data is weaker, and economic growth is non-existent, which could have swayed more members to vote for the cut. But to misquote James Carville – ‘it is all about inflation, stupid’. Bailey has commented in the press conference live now that jobs data is not yet conclusive. The inference being that inflation at 50% higher than target, is. The gilt market is largely unmoved, though we have seen some yields come down a little through the day – a sign that today’s action was already priced in.
Throughout 2025, the 10-year gilt yield has been broadly range bound. More recently, October saw a notable fall in yields (so a rally in prices) as expectations about future interest rate cuts increased. This was tempered slightly in the build up to the Budget in November, which saw some yield swings as information relating to potential changes in tax policy impacted views around future government spending affordability.
Since the Budget, yields have been relatively stable and have settled around the lower end of the range for 2025.
The FTSE 100 has reacted positively to the news – up on the open, although the cautious forward guidance has mean that it has given back some marginal gains on earlier trading. Lower interest rates are good news for any corporate with leverage, and has the potential to boost domestic consumption too, which in turn could support corporate revenues. The UK large cap index is up 28 points in intraday trading.”
Laith Khalaf, head of investment analysis at AJ Bell, comments on the latest:
“A Christmas rate cut will bring some much needed financial cheer to households and businesses across the country, especially those who are battling to keep the show on the road. But there were definite signs of hawkishness in the minutes of the MPC meeting.
“Inflation is now expected to fall back closer to the 2% target in the spring, which would be a real boost to consumers. The Bank reckons this is largely down to the energy price measures included in Rachel Reeves’ recent Budget, so credit where it’s due.
“But this has failed to significantly move the dial for some members of the rate setting committee. The vote to cut rates was still close, with four members wanting to hold rates at 4%, even though inflation is expected to return close to target within a few months.
“That suggests they may be worried about a U-shaped trajectory for CPI, settling at a rate above 2% in the medium term. Indeed, even though the effects of the Budget are disinflationary in the short term, they are expected to push inflation up a touch in 2027 and 2028. It seems clear that wage inflation is a major concern for the hawks in the Bank of England, so that is a key metric to watch going forward for an indication of where monetary policy might be heading.
“The Bank says any further loosening will still be gradual, allowing them to assess incoming data, noting we are now getting nearer to the estimated neutral rate, which limits the scope for further rate cuts. Indeed, it sounds like some members of the committee already think we have reached the neutral rate, and that monetary policy is no longer that restrictive. The minutes also mentioned a high bar for policy reversals – in other words, the Bank doesn’t want to cut too far only to have to hike again.
“All in all, the rhetoric and tone of committee’s minutes look pitched at restraining animal spirits. Despite the rate cut, the Bank remains in cautious mode, wary of both persistent inflation and policy errors.”
Lucy Smith, Senior Investment Manager at Killik & Co, said:
“A limping job market is setting off sirens at the Bank of England, and while it may be too early to say stagflation is behind us, there’s a tangible sense of cautious optimism going into the new year. This decision was all but certain after yesterday’s positive inflation data. While it’s still nearly double the Bank’s target, the downwards trajectory is clear and it would be hard to justify any other decision.
“Regardless of whether you’re speaking to elected politicians or independent policymakers, there’s only one thing on the Christmas wishlist – growth. A rate cut will certainly support growth, but there’s no guarantee that it will actually materialise. If we fail to see evidence of a healthier economy in early 2026, the Bank could change its approach and pursue a far more aggressive rate cut policy, provided inflation does not start to rear its head.”
Adam Gillespie, Partner, XPS Group, commented:
“The Bank of England’s cut to 3.75% marks the first time base rates have fallen below 4% since February 2023. Whilst mortgage holders will welcome the relief, the impact on defined benefit schemes is more nuanced than headlines suggest, as funding is driven by long-term government bond yields rather than short-term rates.
The level of rates is important for DB schemes, but with most now close to maximum hedging levels, the performance of interest rate hedges and the behaviour of the gilt curve matters just as much.
We are currently seeing significant fragmentation in the UK gilt market, with conditions amplifying mismatches between scheme liabilities and protection strategies. This creates material financial risk, especially for maturing schemes with perceived low risk strategies.
Trustees and sponsors need to stress-test their hedging framework, with robust LDI governance now the defining factor in the success of future DB investment strategies.”
Laurence Booth, Global Head of Capital Markets at CMC Markets, comments:
“The Bank of England’s decision to cut interest rates to 3.75% marks a meaningful shift in its stance, giving the economy some breathing room. We have seen the headline CPI fall from 3.8% to 3.6% in October, along with softening consumer spending, so the move is justified. With falling interest rates, traders should expect higher volatility in foreign exchange.
“The rate cut is also good news for households, and the rate cut could offer some relief as borrowing rates are lowered. Savings accounts on the other hand may be negatively affected by the cut in interest rates, but this is unlikely to have a significant impact for savers.”
Andrew Gething, managing director of MorganAsh, said:
“The positive news continues this week with falling inflation, followed by a cut to the base rate. This will be welcomed by new borrowers and those set to remortgage, while bringing relief to those on variable and tracker rates. While the picture is certainly improving and the signs look good, we’re not out of the woods yet. Financial pressures on households remain high and customer vulnerability will continue to be a significant and growing issue.
“Rather than thinking this positive news means that the job is done, firms should respond by making sure they are aware of the challenges of their vulnerable customers. To do so, they must identify who these customers are, understand what outcomes they are receiving and determine how best they can be supported. New customer vulnerability guidance released by the CII and PFS gives all financial services firms the ultimate playbook for achieving this and supports firms in making sure that they have the necessary IT systems, processes and data infrastructure for customer vulnerability management.”
Nick Henshaw, Head of Intermediaries Distribution at Wesleyan, said:
“Today’s rate cut will make cash savings less attractive to clients, creating an opportunity to revisit conversations about portfolio composition and whether they have sufficient equity exposure.
“Clients might benefit from more exposure to equities, but be worried about factors like volatility. In these cases, smoothed funds offer a practical solution – helping advisers balance good outcomes and suitability by providing a way for clients to gain market exposure while managing day-to-day volatility, supporting portfolio performance and giving them peace of mind.”
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