BoE cuts interest rate to 3.75% as mortgage costs ease and savers brace for lower returns

The Bank of England on Thursday cut the base rate to 3.75% from 4%, a 0.25 percentage-point reduction aimed at supporting economic growth as inflation cools. The move comes as the central bank reported inflation at 3.2% in the year to November, and it was approved by a narrow margin on the Monetary Policy Committee, 5-4, with four members voting to hold at 4%.

The decision marks the sixth rate cut since August 2024, leaving the policy rate down by 1.5 percentage points from the 5.25% peak. The last actions before today included a hold on 6 November and a hold on 18 September, with the prior cut occurring in August.

For mortgage borrowers, the 0.25 percentage-point base-rate reduction generally translates into lower borrowing costs over time. Those with tracker mortgages, which move in step with the base rate, will see the immediate impact of the cut. Halifax’s lowest tracker, at 4.11% with a £1,499 fee, is set to fall to about 3.86%. While some fixed-rate products may see small reductions in the near term, lenders typically price new fixed deals based on longer-term expectations for rates rather than reacting to a single base-rate move.

Borrowers renewing or remortgaging soon should act promptly, lenders say. Rachel Geddes, strategic lender relationship director at Mortgage Advice Bureau, noted that many lenders may have already priced in this change into current products. “While this latest cut provides much-needed confidence, borrowers should be mindful that many lenders have already priced this change into their current products. For those looking to remortgage, don’t hold fire in hopes of further reductions: now is the time to secure your new deal.” Those already on fixed-rate deals remain locked into their rates for two, three or five years, depending on the terms, meaning payments may stay unchanged for now.

Around 1.8 million borrowers are due to renew their mortgages next year, a cohort for whom rate cuts are welcome but not uniform in effect. Those coming off two-year fixes are likely to save money relative to rates seen two years ago when deals near 4.75% were common, while five-year fixes entered at far lower levels may face remortgaging at around 3.5% or higher or reverting to standard variable rates that can exceed 7%. David Hollingworth, associate director at L&C Mortgages, said homeowners will be in a variety of positions and advised shopping around about three to four months before the current deal ends. “Start to shop around three to four months before the current deal ends,” he said, adding that you can move onto lower rates before your deal ends even if you have already locked in a rate in advance.

What happens next for mortgage rates? Banks have been waging a mortgage-price war in recent weeks, with the potential for fixed rates to dip below 3.5% for the first time in about three years. Halifax has cut fixed-rate mortgages by up to 0.17 percentage points, pushing some deals toward the 3.5% threshold. NatWest, Barclays and Nationwide have also trimmed rates. The new base-rate level may lift hopes for further lender repricing in early 2026, though the trajectory will depend on inflation and the path of the policy rate. Hollingworth cautioned that the base rate could fall further next year, but the pace will hinge on inflation and expectations for future easing. A scenario in which the base rate eases toward 3.5% within six months is possible, with some forecasters even predicting the possibility of a 3.25% rate by the end of 2026. That said, a move below 3% by year-end 2026 is not universally anticipated, with some forecasts pointing to a floor around 3% if inflation remains subdued.

On the savings side, the base-rate reduction is typically bad news for savers, as banks and building societies adjust deposit rates lower in response to the lower cost of funds. James Blower, founder of Savings Guru, warned that savers should expect rate cuts to continue and that the best easy-access and Isa rates may fall further. “None of this is good news for savers who can expect to see their rates cut. With the base rate down, the pressure on easy-access rates will intensify,” Blower said. Andrew Hagger of MoneyComms added that even now, some top easy-access deals remain available, but warned that better savings options may shrink as competition tightens. “I expect 2026 to deliver deeper cuts than just the drop in Base itself,” Hagger said, signaling continued volatility in savings markets.

The market-wide trend shows savers already feeling the squeeze. Since the base rate was cut in August 2025, more than 90% of savings providers have trimmed rates, according to rate-watchers Moneyfacts Compare. The average easy-access rate has drifted lower, and the best easy-access deals remain above the headline averages only in select products. Some top offers now sit around 4.3–4.5% for straightforward, no-strings accounts, while longer fixed-term bonds edge into the mid-4% range. The cash Isa remains a popular tax-advantaged path for savers seeking to shelter interest from tax, though the room for tax-free growth is also tightening as rates shift.

Savers who want to protect their returns may look to fixed-rate bonds or cash Isas that lock in higher rates for a set term. Kent Reliance and Hampshire Trust Bank are among providers advertising competitive fixed rates, with one-year deals above 4% and multi-year products offering yields in the mid-4% range. The best accessible options often require minimum deposits and may carry FSCS protection up to £85,000 per person. Analysts emphasize comparing deals carefully and prioritizing protection and liquidity based on individual needs.

As the year progresses, experts recommend monitoring rate moves and reassessing savings mixes regularly. The overarching guidance from industry observers is to avoid leaving cash in underperforming accounts and to consider fixed-rate or Isa options when rates are comparatively attractive. Savers should also be mindful of tax implications and the April 2027 Isa allowance changes, which may affect long-term planning.

Overall, today’s 3.75% base rate marks a continuing shift in the UK monetary policy stance, with policymakers balancing the aim of sustaining growth and employment against the need to keep inflation in check. The evolving path for mortgage pricing and savers’ yields will depend on how quickly inflation moderates and how market expectations adjust to future rate prospects.