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The Bank of England (BoE) has voted to cut interest rates by 0.25% to 3.75%, bringing the base rate to its lowest level since February 2023.

The move was widely expected, not least after recent figures showing inflation unexpectedly fell from 3.6% to 3.2% in November, while the economy shrank 0.1% in October.

Despite this, the vote by the BoE’s Monetary Policy Committee was not a foregone conclusion, ending in a 5-4 split in favour of the cut.  

This move will be welcomed by homeowners looking to remortgage in the near future, and those on tracker mortgages, who will see their rate fall. Mortgage rates have already begun to ease, with lenders competing for business. Further rate cuts are also expected in 2026, which could further reduce mortgage costs.

However, the announcement will be less welcome for many savers, who are likely to see the rate of interest paid on accounts fall sharply too.

Andrew Bailey, BoE Governor, said: “We think that Bank Rate is likely to fall gradually further in future, but that will depend on whether variables like pay growth and services inflation continue to ease.”

Commenting on the rate cut, SJP’s chief economist Hetal Mehta said: “Markets had already been pricing in today’s cut thanks to the weakening economy and slowing inflation, so I don’t think many will have been surprised by the news.

“What is still very much up for debate is what happens now. Core inflation is still north of 3%. Wage growth is above 4%. Taken together, this creates some ambiguity on the future. So even if the direction of travel for interest rates is broadly agreed upon, the speed and magnitude remain very much up for debate.”