The question “Did the Bank of England change base rate?” has become central to the UK’s financial conversation. Following years of rising borrowing costs, the latest Bank of England rate decision signals a potential turning point for mortgages, savings, pensions, and the wider economy.
Did the Bank of England change the base rate?
The short answer
Yes. The Bank of England changed the base rate, cutting it by 0.25 percentage points to 3.75% at its most recent Monetary Policy Committee (MPC) meeting in December 2025.
This move marked a continuation of the Bank’s gradual shift away from the aggressive tightening cycle that dominated 2022 and 2023.
What the base rate is
The Bank of England base rate (often called Bank Rate) is the interest rate the central bank pays on reserves held by commercial banks. It acts as the foundation for:
- Mortgage interest rates
- Savings and deposit rates
- Business loans
- Credit cards and overdrafts
- Government borrowing costs
Even small changes in the base rate can ripple across the entire UK economy.
Background: how UK interest rates reached this point
From ultra-low to multi-year highs
Between the global financial crisis and the pandemic, UK interest rates stayed historically low. That era ended abruptly in late 2021, when inflation began accelerating sharply.
In response, the Bank of England raised interest rates repeatedly to curb price pressures, pushing the base rate to levels not seen for more than a decade.
Why is it now shifting
By late 2024 and into 2025, inflation eased significantly. Energy prices stabilised, supply chains improved, and demand cooled. This gave policymakers room to begin cutting rates cautiously, rather than maintaining restrictive settings indefinitely.
The latest Bank of England rate cut reflects this evolving economic backdrop rather than a return to emergency-level policy.
Bank of England rate decision today: why was the base rate cut?
Why did the Bank of England cut interest rates?
The Bank of England cited several key factors behind its decision:
- Inflation has fallen substantially from its peak
- Economic growth remains subdued, limiting pricing power
- Labour market pressures are easing, though not uniformly
- Maintaining very high rates risked unnecessary economic damage
In simple terms, the Bank judged that keeping rates too high for too long could hurt households and businesses without delivering further inflation benefits.
What the Bank did not say
Importantly, the Bank did not signal a rapid return to ultra-low rates. Policymakers stressed that future decisions remain data-dependent, not pre-committed.
That means rates could:
- Fall further
- Remain stable
- Rise again if inflation pressures re-emerge
Why the base rate change matters to UK households
Mortgages
For mortgage holders:
- Tracker and variable-rate mortgages tend to respond quickly to base rate cuts
- Fixed-rate mortgages are influenced by market expectations rather than just the current rate
Many households remortgaging in 2025–2026 will still face higher rates than those seen before 2022, even with recent cuts.
Savings
For savers:
- Base rate cuts often lead to lower easy-access savings rates
- Fixed-term savings products may lag initially but adjust over time
Banks do not always pass on rate changes evenly, making regular comparison essential.
Pensions and annuities
Interest rates influence long-term bond yields, which underpin annuity pricing. As a result, Bank of England decisions can affect retirement incomes, particularly for those nearing retirement.
Real-world UK examples
Example 1: A tracker mortgage holder
A homeowner on a £200,000 tracker mortgage linked to Bank Rate may see monthly payments fall following a 0.25% cut. While the savings might appear modest month-to-month, it adds up over a year.
Example 2: A cash saver
A saver holding money in an easy-access account could see interest rates trimmed within weeks of a base rate cut, reducing annual returns unless they switch providers.
Example 3: Pension annuities
Someone approaching retirement may notice annuity quotes soften if long-term yields fall alongside interest rate expectations.
Step-by-step: how a base rate change affects the economy
- The MPC announces a base rate change
- Financial markets react immediately
- Banks adjust funding and lending rates
- Mortgage and savings products are repriced
- Households and businesses feel the impact
This chain explains why rate decisions generate such widespread attention.
Bank of England FX rates history and market signals
The Bank of England’s FX rate history shows that interest rate changes can influence sterling indirectly. While currency markets react to many factors, rate expectations can affect:
- The pound’s attractiveness to global investors
- Import and export pricing
- Inflation via import costs
However, the Bank does not target exchange rates directly when setting policy.
The role of the Bank of England nominal gilt curve
What is the nominal gilt curve?
The Bank of England nominal gilt curve reflects yields on UK government bonds across different maturities. It provides insight into:
- Market expectations for future interest rates
- Inflation outlook
- Economic growth prospects
Why it matters
A falling yield curve often signals expectations of lower rates ahead, while a rising curve may suggest tighter conditions. Policymakers monitor these signals closely, though they do not rely on them alone.
Pros and cons of the Bank of England rate cut
Benefits
- Lower borrowing costs over time
- Reduced pressure on mortgage holders
- Support for economic activity
Risks
- Lower returns for savers
- Potential inflation resurgence if cuts are premature
- Weaker sterling under certain conditions
This balance explains the Bank’s cautious messaging.
UK-focused comparisons
Fixed vs variable mortgages
- Fixed rates: Stability and predictability
- Variable rates: Faster response to base rate changes, but higher risk
Borrowers vs savers
- Borrowers benefit more from cuts
- Savers benefit more from higher rates
Monetary policy inevitably redistributes financial outcomes.
Read our explainer on whether the UK is heading for a recession for more context on how growth risks can affect sterling and markets.
Table: Impact of a base rate change on UK households
| Area | Effect of Rate Cut | Effect of Rate Rise |
|---|---|---|
| Mortgages | Lower repayments | Higher repayments |
| Savings | Lower interest income | Improved returns |
| Business loans | Cheaper borrowing | Higher costs |
| Pension annuities | Potentially lower income | Often improved payouts |
Useful Tips for UK Readers
- Review mortgage deals well before fixed terms expire
- Compare savings accounts regularly, not just at rate announcements
- Avoid assuming rates will return to pre-pandemic lows
- Track inflation and wage data, not just headlines
- Seek regulated advice for pension decisions
FAQ: Did the Bank of England Change the Base Rate?
Did the Bank of England change the base rate?
Yes. The Bank of England cut the base rate to 3.75% at its most recent MPC meeting.
What was the Bank of England rate decision today?
The latest decision was a 0.25 percentage point rate cut, reflecting easing inflation pressures.
Why did the Bank of England cut interest rates?
To balance falling inflation with weak economic growth and avoid unnecessary financial strain.
Will there be more Bank of England rate cuts?
Further cuts are possible, but the Bank has said decisions depend on incoming economic data.
How does the base rate affect mortgages?
Tracker and variable mortgages usually move quickly, while fixed rates respond to market expectations.
Does the base rate affect savings?
Yes. Savings rates often fall following base rate cuts, though not always immediately.
What is the role of the nominal gilt curve?
It reflects market expectations for future interest rates and inflation.
Conclusion
So, did the Bank of England change the base rate? Yes, and the decision marks a cautious shift in UK monetary policy after years of tightening. While the latest rate cut offers some relief to borrowers, the Bank has been clear that future moves depend on inflation, wages, and economic conditions.
For UK households, the key message is vigilance rather than prediction. Mortgage holders, savers, and retirees should prepare for a period of adjustment where rates may fall further, stabilise, or rise again if inflation risks return.
Read our explainer on whether the UK is heading for a recession for more context on how growth risks can affect sterling and markets.
