Interest base rate cut to 3.75%: what does it mean for you?

The Bank of England has made the fourth change this year to the base rate, cutting it by 0.25 percentage points.

We’ve taken a look at the thinking behind this latest decision, and whether we’re likely to see any more cuts in 2026.

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What is the current Bank of England base rate?

The interest rate set by the Bank of England (BoE) is known as the base rate.

The current rate was decided on 18 December 2025, cut to 3.75% from 4%. It was another very close decision. Five members of the Monetary Policy Committee (MPC) voted to cut by 0.25 percentage points to 3.75%, the other four wanted hold the base rate at 4%.

It means the base rate is close to it’s lowest rate in three years. It sat at 3.5% in December 2022, before rising to 4% in February 2023.

Will interest rates fall in 2026?

We’ve had four cuts to the base rate this year, a drop from 4.75% to 3.75%.

The Bank of England is sticking with its “gradual and cautious” approach to further cuts, saying it’ll make cuts if disinflation continues.

Well, in November, the Bank of England said they expect the inflation rate to go to to 3.2% by March 2026 – and that’s already happened. And measures announced in the Budget mean the Bank now hopes it’ll hit the target of 2% faster than expected, perhaps by Q2 in 2026 rather than in 2027.

But that doesn’t mean the base rate will also be cut as fast as it has this year. The minutes from this meeting said each future meeting would be “a closer call”, meaning nothing is certain. Prior to the announcement, the markets were predicted just one cut to 3.5% in 2026, and that matches with what the Bank said last month.

Following this announcement, some analysts were saying there might actually be two or even three cuts in 2026.

But anyone hoping for rates to fall back to the levels we saw prior to 2022 will be disappointed. That 3.5%, give or take, could well be the new normal for a good while.

Of course, these predictions are rarely correct!

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When is the next interest rate decision?

The rate is set every six weeks or so by the Bank of England Monetary Policy Committee, a group of nine people, with the majority vote deciding whether the rate goes up, down or stays the same.

The next meetings this year will be on:

• 5 February 2026
• 19 March 2026
• 30 April 2026
• 18 June 2026
• 30 July 2026
• 17 September 2026
• 5 November 2026
• 17 December 2026

(full dates here).

The base rate and inflation

The driver for changing the base rate right now is inflation, which has been higher than wanted most of the time since late 2021.

Increasing interest rates is seen as the key (perhaps only) way to battle inflation, the idea being we’ll save more or have more expensive debts (like mortgages), leading to us spending less. This will force suppliers to lower prices, which in turn will see the inflation rate drop (though in most cases that doesn’t mean prices fall, they just get more expensive at a slower rate).

However, those rate hikes take time to filter down and for the inflation rate to – in theory – come under control. And if you keep increasing rates the danger is it pushes the economy into recession and cause hardship for borrowers, particularly those with mortgages.

Likewise if the Bank decides to cut the rate too early, it might not have done enough, leading to a reverse later on.

How the base rate impacts your money

The BoE rate is a large part of what high street and online banks and lenders use to inform the rates they offer. This means it will impact the cost of borrowing on things like mortgages, loans and credit cards, but also how much you can earn on savings.

Sometimes it’s a direct correlation if you have a product with a tracker rate – something that literally changes up or down in line with the BoE rate. In that case you’ll see an instant change.

On other products you might not see an instant change – if at all. So it pays to shop around to see if you can get a better deal.

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How the decision impacts your savings

Since a peak in autumn 2023, rates have generally been falling as banks price in both actual and predicted cuts (they’re fast to pass these on, but slow to give us the increases).

With this cut there will be an immediate change to many easy access accounts. The likes of Chase, Chip and Tandem will reduce their rates by the full 0.25% today as they track the base rate. Others which are variable don’t have to change what they offer, but many will – and potentially by more than today’s cut. You’ll probably get notice for when the change actually happens.

So keep an eye on emails or letters from your bank about changes, and compare them to our best buy tables to make sure you’re getting a decent rate. I’d probably leave it a little while to do this just in case the account you move to also decides to reduce it’s rate.

Fixed rates may move down a little if they think there will be extra cuts next year, so if you are looking to lock cash away you’ll want to do this ASAP.

The highest-paying savings accounts – our picks

• 6% AER current account from Santander (limited to £4,000 deposit and has monthly fee)
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• 4.52% AER easy access Cash ISA from Trading 212

Read more about these and the other best savings accounts in our best buys guide

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How the decision impacts your mortgage

So a cut to the base rate means a cut to your mortgage, right? Not quite.

While tracker and standard variable rate (SVR) mortgages rates are directly based on the base rate, on the whole they’re actually influenced by something known as swap rates – effectively where lenders think the rate will be in the future.

In part, that’s why we’ve seen rates drop from major lenders before the announcement was made. They anticipated a reduction at some point, and reduced rates to reflect this.

Of course, if swap rates now start to price in extra cuts next year as a result of the new inflation predictions, that could mean there are changes to mortgage rates.

It’s always worth speaking with a mortgage broker who can advise on different strategies – though since no one knows what will happen this still won’t guarantee any savings.

And for anyone who is really struggling to make their repayments, it’s important to talk to your lender to see if anything can be worked out – though bear in mind missing payments can impact your credit report.

If it’s impacting other essential spending, then see whether those companies can support reduced repayments. And if debts have built up, speak to a debt charity.

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How the base rate has changed