Bank of England cuts interest rates to 3.75%

Written by Michael Griffiths

18/12/2025

The Bank of England (BoE) has announced a 0.25% cut to its base rate, bringing interest rates down to 3.75%, their lowest level since February 2023.

The latest move marks the sixth time the central bank has cut interest rates since August last year, when it started its cutting cycle from a peak of 5.25%.

At its meeting this week, the nine members on the BoE’s Monetary Policy Committee (MPC) voted by a majority of five to four to reduce the base rate by 0.25%, with four members in favour of maintaining rates at 4%.

The decision to cut the base rate follows yesterday's announcement by the Office for National Statistics (ONS) that inflation had fallen to 3.2% in the year to November, the lowest annual rate since March.

According to the report published today by the BoE, the MPC is expecting inflation to fall back towards the 2% target “more quickly in the near term”.

“The risk from greater inflation persistence has become somewhat less pronounced since the previous meeting, while the risk to medium-term inflation from weaker demand remains,” the MPC stated.

Chief economist at Mercer UK, Shweta Singh, said the cut in interest rates to 3.75% was “widely expected”.

“Since the last meeting, data has been on the dovish side of BoE forecasts,” Singh commented. “Inflationary pressures have fallen more than expected. The labour market has been weakening at a rapid clip and the unemployment rate has been higher than the Bank’s forecasts.

“Market expectations for the BoE’s rate path have moved closer to our dovish forecasts, but there could be room for markets to price in more rate cuts.

“The key determinants of the BoE’s policy path will be underlying inflation, which we expect to ease further. Policy is still restrictive and a weak labour market mitigates risks of second round effects, keeping the Bank on an easing path.”

The BoE will announce its first decision on the base rate in 2026 on 5 February.

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