The Bank of England has elected to cut interest rates by 25 basis points to 3.75%, but members of the Monetary Policy Committee (MPC) were split, with five voting in favour of the cut, while there were four against the move.
This is the sixth reduction since the summer of 2024 and, with inflation expected to continue to fall towards the Bank's 2% target during 2026, markets are anticipating at least one further rate cut in 2026.
The decision reflects a mixed economic picture, with UK growth relatively flat over the second half of this year, while the latest inflation data came in softer than expected.
The move was widely anticipated. However, the tightness of the vote raises the question of whether the downward path is steep enough, according to Neil Birrell, chief investment officer at Premier Miton Investors.
“Given recessionary conditions in the economy, easing inflationary pressures and the vote split as it was, it’s not clear that [further rate cuts] is the view at the Bank of England,” he said. “There are risks that policy remains too tight for too long and the economy will struggle to regain any momentum at all.”
For Brad Holland, director of investment strategy at JP Morgan Personal Investing, the caution is justified by the uncertainty in the market.
“Policymakers are having to strike a delicate balance between supporting growth and taming inflation, which is still well above the Bank’s target of 2%. This struggle is not unique to the UK as central banks across the globe also face this challenge going into 2026,” he said.
“For now, it is clear to onlookers that the Bank of England continues to be focused on a ‘gradual’ approach to the rate-cutting cycle. This may disappoint those who hope that faster rate cuts will spur economic growth and reduce borrowing costs, but with uncertainty still high, policymakers remain cautious.”
Meanwhile, borrowers, home buyers and anyone about to remortgage can enjoy a small boost.
Lorna Hopes, mortgage specialist at the chartered financial advisers Smith & Pinching, noted expectations of today’s cut were so nailed on that “a mini price war has already broken out between lenders”, with banks and the bigger building societies cutting their fixed rates and fighting hard for market share.
“Many borrowers can now get a fixed rate of well under 4%, and there are some eye-catching deals available to some remortgagers and buyers with a big deposit.”
“Anyone with a variable rate mortgage will see their monthly payments tick down automatically as a result of today’s decision, but the biggest winners might be the thousands of people due to come off a two-year fixed rate deal in 2026; they should be able to remortgage onto a much lower rate.”
For those who have a mortgage with a fixed rate that’s due to expire in the first half of 2026, it’s worth shopping around and talking to a broker now, said Hopes.