London, 18 December 2025 — The Bank of England is expected to announce a pre-Christmas interest rate cut at midday, a move that markets have increasingly priced in after UK inflation fell more sharply than forecast and fresh data pointed to a cooling jobs market and slowing growth. [1]
A quarter-point reduction would take Bank Rate from 4% to 3.75%, which would be the fourth cut of 2025 and the lowest level in nearly three years—offering a potential boost to borrowers and a closely watched signal about how far rates might fall in 2026. [2]
Why a Bank of England interest rate cut looks “nailed on” today
The momentum behind expectations for a cut has been driven by a run of economic releases showing inflation easing and demand weakening.
The latest inflation bulletin from the Office for National Statistics shows CPI rose 3.2% in the 12 months to November 2025, down from 3.6% in October, while services inflation eased and core measures also slowed—key metrics closely tracked by policymakers. [3]
ONS data also highlights where price pressures cooled most: food and non-alcoholic beverages inflation slowed, and alcohol and tobacco also made large downward contributions to the change in inflation rates. [4]
At the same time, the labour market has softened. The ONS estimates the UK unemployment rate at 5.1% (Aug–Oct 2025), up on the quarter, while the employment rate edged down. [5]
Growth has not provided much of a counterweight. ONS GDP data estimates that monthly GDP fell 0.1% in October 2025, and the three-month measure also dipped—adding to concerns about the economy heading into 2026. [6]
Put simply: inflation is still above target, but the direction of travel has become more convincing, and the wider economy is losing pace—conditions that usually make it harder for central banks to justify keeping rates elevated.
What time is the Bank of England decision—and what will be published?
The Bank of England is due to release its Monetary Policy Summary and minutes at 12:00 (midday). The Bank’s publication page for today indicates the summary and minutes will be released on 18 December 2025. [7]
That means today’s announcement is not just about the headline rate move. The minutes will likely shape expectations for 2026 by revealing:
- how close the vote was (and whether the committee remains split),
- which inflation measures policymakers are most concerned about,
- and how “gradual” the Bank intends any further easing to be.
Markets are already positioned for a 3.75% base rate—so guidance may matter more than the cut
In early trading ahead of the decision, sterling was relatively steady, reflecting how widely anticipated the move has become—after the inflation surprise strengthened bets on a cut. [8]
The key question for investors is what the Bank signals next. Reuters reporting indicates markets have generally priced only one additional quarter-point cut in 2026, though expectations have shifted as new data arrived. [9]
One reason the forward path is so sensitive is that policymakers have been divided. In November, the rate decision was narrowly balanced, and analysts have been watching whether the “middle” of the committee changes stance as evidence on inflation and jobs comes in. [10]
What a 3.75% Bank Rate could mean for mortgages and homeowners
For homeowners and buyers, a base rate cut does not automatically translate into an instant across-the-board reduction in mortgage costs—but it does tend to improve the direction of travel.
Tracker and variable-rate mortgages may feel it faster
Borrowers on tracker deals typically see payments move more quickly when the base rate changes (depending on the product’s margin and lender timing). Even a 0.25 percentage point move can make a noticeable difference over time—especially for larger balances.
As a simple illustration (not a quote, and not personalised advice), a 0.25% rate reduction on a £200,000 interest-only mortgage equates to roughly £41.67 less per month in interest (0.25% of £200,000 ÷ 12).
For repayment mortgages, the effect depends on term and rate. On a £200,000 repayment mortgage over 25 years, a move from 4.00% to 3.75% is roughly £27 per month lower, based on standard amortisation maths.
Fixed-rate mortgages: pricing is driven by competition and funding costs, not just Bank Rate
For fixed deals, lenders often adjust pricing in advance because they base many fixed rates on wholesale funding and swap-rate expectations, plus competition.
Sky News’ Money coverage on 18 December points to a market where lenders are already battling for business—and where experts expect a “glide path” down rather than a sudden drop back to ultra-low levels seen in the 2010s. [11]
The Times reported that a mortgage “price war” could push some fixed rates below 3.5% in coming weeks, citing examples of competitive two-year and five-year fixes already moving lower. [12]
Remortgaging in 2026: why today’s decision still matters
Even if you’re not refinancing today, the direction of base rate decisions influences how lenders set future deals—especially as large numbers of households roll off older fixes.
One major theme emerging from market commentary is that “ultra-low” mortgage pricing is unlikely to return, but rates around the 3%–3.5% range could become more common if inflation continues to ease and the Bank keeps cutting gradually. [13]
The inflation problem isn’t “over”—and that’s why the Bank may stay cautious on 2026 cuts
Despite the headline slowdown, inflation remains above the Bank’s 2% target. ONS data shows CPI services inflation at 4.4% in the latest read—still a level many policymakers view as inconsistent with sustainably returning to target without keeping some policy restraint. [14]
Reuters also notes that UK inflation has remained among the highest in the G7 even after the recent fall, reinforcing the case that the Bank may resist signalling an aggressive cutting cycle. [15]
That tension—slowing growth versus still-elevated underlying pressures—is one reason today’s minutes are likely to be parsed line by line.
What economists and industry watchers say to look for next
With markets expecting the cut, attention has shifted to whether the Bank hints at a faster pace of reductions, or emphasises “gradual” moves and data dependence.
- Reuters reporting highlights expectations that the committee may not want to imply “back-to-back” cuts, even if it reduces rates today. [16]
- The Independent’s live coverage notes the risk the Bank may need to “play catch-up” in 2026 if demand weakness deepens and inflation continues to cool. [17]
- Sky News cites brokers and analysts who see mid-3% mortgage products as plausible, but who broadly agree that the era of 1%–2% mortgage rates is unlikely to return without a major shock. [18]
The bottom line for UK borrowers and savers on 18 December 2025
If the Bank of England cuts interest rates to 3.75% today, it would confirm that policymakers believe the inflation trend is easing enough—and that the economy is soft enough—to warrant lower borrowing costs. [19]
But for households, the most practical impact may come in stages:
- Some tracker/variable borrowers could see changes sooner.
- Fixed-rate borrowers may benefit through improved refinancing options as lenders compete and funding expectations adjust. [20]
- Savers could see returns gradually soften if banks lower savings rates in response to a lower base rate environment (often unevenly and not always immediately).
The headline cut may be widely anticipated—but what the Bank says about inflation persistence, services prices, wages, and the likely endpoint for rates could be the real market-moving story, shaping mortgage pricing and household budgets well into 2026. [21]
References
1. www.reuters.com, 2. www.reuters.com, 3. www.ons.gov.uk, 4. www.ons.gov.uk, 5. www.ons.gov.uk, 6. www.ons.gov.uk, 7. www.bankofengland.co.uk, 8. www.reuters.com, 9. www.reuters.com, 10. www.reuters.com, 11. news.sky.com, 12. www.thetimes.com, 13. news.sky.com, 14. www.ons.gov.uk, 15. www.reuters.com, 16. www.reuters.com, 17. www.independent.co.uk, 18. news.sky.com, 19. www.reuters.com, 20. news.sky.com, 21. www.reuters.com
