Summary
- The Bank of England’s (BoE) MPC has cut interest rates from 4% to 3.75%
- The MPC last met on 6 November when it held rates at 4%
- The market was widely expecting the MPC to lower interest rates following weakening jobs data, slowing inflation and the UK economy stagnating
| When will interest rates fall further? | UK inflation forecast | MPC meeting dates |
Bank of England’s MPC digesting economic data
Good afternoon, and welcome to our live coverage ahead of tomorrow’s announcement from the Monetary Policy Committee (MPC) on whether it will raise, hold or cut UK interest rates.
The meeting follows a string of macroeconomic news for the UK.
Data published by the Office for National Statistics (ONS) today (17 December) revealed that inflation as measured by the Consumer Prices Index (CPI) slowed to 3.2% in the 12 months to November. This is down from 3.6% in the 12 months to October.
Labour market figures released yesterday (16 December) showed UK unemployment rose to an almost five-year high of 5.1% in the three months to October.
The latest GDP figures from the ONS show the UK economy unexpectedly shrank in the three months to October, falling by 0.1%.
All of this will be keenly reviewed by MPC, who will then decide on where to set interest rates. A stagnant economy, rising unemployment and slowing inflation all suggest a base rate cut is on the way, despite inflation still running ahead of the BoE’s 2% target.
Follow our preview and reaction coverage of the MPC’s decision in this live report.
When is the MPC’s interest rates decision announced?
The MPC will confirm its UK interest rate decision at midday (12pm) tomorrow (18 December).
Stay with us for live reaction to the decision and what it may mean for your finances.
Why does the Bank of England review interest rates?
The Bank of England (BoE) reviews its base rate, eight times a year, as a lever to control inflation but also to stimulate growth in the UK economy.
The government sets an inflation target of 2% for the bank to meet. This is seen as a healthy rate of price rises for an economy.
Policymakers at the Bank of England aim to strike a balance between encouraging economic growth and controlling inflation.
The theory is that increasing interest rates encourages people to save money and not spend it, which in turn slows inflation.
Conversely, lowering interest rates reduces the cost of borrowing and can encourage people to spend their money rather than save it, which can stimulate growth in the economy.
What is the Monetary Policy Committee expected to announce?
All the signs point to a base rate cut tomorrow. In a research note published last week, one of the ‘big four’ banks HSBC said it expects a cut by 25 basis points to 3.75%.
This, HSBC said, was in line with market expectations, which is pricing in a 93% chance of a cut.
With labour market data showing unemployment on the rise and inflation data from today (17 December) showing price rises have slowed, this suggests a base rate cut is even more likely.
Alice Haine, personal finance analyst at online investment platform Bestinvest by Evelyn Partners, said: “The headline rate of inflation plunged to 3.2% in the 12 months to November, coming in lower than expected, raising the likelihood that the Bank of England will press ahead with a sixth interest rate cut tomorrow and deliver some much-needed respite for Budget-battered Britons ahead of Christmas.”
The Bank of England base rate over time
The base rate has gradually fallen from a high of 5.25% in 2024 – it has been cut five times since then and currently sits at 4%.
The base rate started climbing in December 2021, from 0.1%, as the Bank of England looked to cool runaway inflation that soared in part due to a rise in global demand for goods and higher energy prices.
What is the Monetary Policy Committee?
The Monetary Policy Committee (MPC) is a committee of nine members working for the Bank of England.
The committee is made up of one governor, currently Andrew Bailey, three deputy governors, a chief economist and four external members appointed directly by the chancellor, currently Rachel Reeves.
A representative from the Treasury also sits in on MPC meetings, but isn’t allowed to vote.
A decision on whether the base rate goes up, down, or stays the same, is based on a majority voting system. For example, at the last MPC meeting, five members voted to hold base rate at 4% while four voted to reduce it by 0.25 percentage points to 3.75%, so base rate stayed at 4%.
Why has inflation slowed to 3.2%?
The latest data from the Office for National Statistics (ONS) reveals the Consumer Price Index measure of inflation slowed to 3.2% in the 12 months to November, down from 3.6% in the 12 months to October.
According to last month’s Monetary Policy Committee report, the Bank of England expected inflation to fall to a higher 3.4%. So what is behind the bigger-than-expected fall?
The ONS said lower food prices were the main driver of the fall, with prices rising less quickly on cakes, biscuits and breakfast cereals. Tobacco prices and women’s clothing prices also helped pull the CPI rate down, the ONS said.
What dates will the Monetary Policy Committee make base rate announcements in 2026?
The Monetary Policy Committee will make eight announcements next year following base rate reviews.
These are the dates it will make announcements in 2026:
- 5 February
- 19 March
- 30 April
- 18 June
- 30 July
- 17 September
- 5 November
- 17 December
Monetary Policy Committee 'poised to cut rates'
The Monetary Policy Committee (MPC) is “poised to deliver an early Christmas present to markets in the form of another interest rate cut on Thursday”, said Matthew Ryan, head of market strategy at financial services firm Ebury.
Today’s larger-than-expected fall in CPI inflation will encourage the doves on the committee, who have previously pushed for cuts in order to support the UK’s faltering economy. But the vote of Bank of England governor Andrew Bailey could be decisive.
“On balance, we think that governor Bailey will side with the doves, but with the rest of the committee seemingly entrenched in their views, he may be the only official to change their vote from the previous meeting,” said Ryan.
Caption: At the MPC’s last meeting, Bank of England governor Andrew Bailey held the deciding vote. Will the same be true tomorrow?
Thanks for following our rolling preview of tomorrow's UK interest rates decision. We're finishing here for today, but join us again tomorrow morning for more preview analysis as well as live coverage of the decision and reaction from midday.
Good morning and welcome back to our live blog as we await the announcement of the Monetary Policy Committee’s base rate decision. We'll bring you live reaction and analysis following the announcement at midday.
Where is inflation heading?
The latest Consumer Price Index (CPI) measure of inflation showed prices rose by 3.2% in the 12 months to November, according to the Office for National Statistics (ONS). But where will prices go next?
According to the Monetary Policy Committee’s latest Monetary Policy report, the CPI measure peaked at 3.8% this year.
It predicts it will be at 3.2% in March 2026, slowing to 2.5% at the end of next year, then reaching the 2% target by the last quarter of 2027.
Financial expert predicts 5-4 vote split
The last MPC meeting ended in a 5-4 vote split in favour of holding rates at 4%. That effectively meant that Bank of England governor Andrew Bailey – viewed as one of the centrists among the MPC panel – had the deciding vote.
Matthew Ryan, head of market strategy at financial services firm Ebury, expects that today’s meeting will see the same vote split, but that Bailey will opt to side with the doves on the committee.
“The November meeting minutes suggested that he was very close to doing just that last time out,” says Ryan. “The real question is whether any of the hawks follow suit.”
In a monetary policy context a hawk is someone who prioritises controlling inflation with tight monetary policy, as opposed to a dove who prioritises economic growth with looser policy.
Ryan doesn’t expect any of the MPC’s hawks to follow suit, given that most have expressed hawkish views in recent comments.
“Chief economist [Huw] Pill could make it a 6-3 vote, but he has also voiced a preference for a slow removal of policy restriction during his latest remarks, so he may again opt for no change,” said Ryan.
Ryan expects that Bank of England chief economist Huw Pill could be the one hawk on the MPC to vote for a cut, which could lead to a 6-3 split.
How closely have you been following the macroeconomic news this week?
BREAKING: As widely expected, the MPC has voted to lower interest rates, from 4% to 3.75%.
How did the Monetary Policy Committee vote?
The Bank of England’s (BoE) Monetary Policy Committee voted 5-4 to cut interest rates.
Andrew Bailey, governor of the BoE, said bank rate is expected to fall gradually in the future, depending on pay growth and services inflation continuing to ease.
Reeves responds to interest rates cut
Chancellor of the exchequer Rachel Reeves has responded to the news that the MPC has cut UK interest rates to 3.75%.
“This is the sixth interest rate cut since the election - that's the fastest pace of cuts in 17 years, good news for families with mortgages and businesses with loans.
"But I know there's more to do to help families with the cost of living. That's why at the Budget we froze rail fares and prescription charges, and will be cutting £150 off the average energy bill next year.”
Rachel Reeves has responded to the Bank of England's Monetary Policy Committee's decision to cut interest rates to 3.75%
Reduction in interest rates 'not a signal that borrowing costs are about to fall sharply'
Holly Tomlinson, financial planner at wealth management firm Quilter, said while today's interest rate cut showed there is growing confidence inflationary pressures are easing, it doesn't mean borrowing costs "are about to fall sharply across the board".
"With inflation still above target and policymakers keen to avoid reigniting price pressures, this move is best seen as a cautious adjustment rather than a decisive shift towards looser monetary policy, particularly at a time when household finances remain under strain from years of higher prices and frozen tax thresholds," Tomlinson added.
Monetary Policy Committee still committed to gradual cuts
The rate cut was viewed as a near-certainty by the markets, but with a 5-4 vote split it is clear that the MPC itself didn’t view the decision as a given.
“The decision to cut rates to 3.75% 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,” said Brad Holland, director of investment strategy at J.P. Morgan Personal Investing.
Holland highlighted that “the cooling across the UK economy over recent months has been a cause for concern for many in the market”.
Despite these concerns, four members – Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill – viewed the risk of above-target inflation as greater than the threats to the economy.
“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,” said Holland. “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.”
Bailey: Disinflation is established
Governor of the Bank of England Andrew Bailey was the swing voter across the MPC’s last two meetings, switching from a hold in November to a cut today and taking the MPC’s decision with him.
“Data news since our latest meeting suggests that disinflation is now more established. CPI inflation has fallen from its recent peak and upside risks have eased,” Bailey said in his comments. “Measures in the Budget should reduce inflation further in the near term. The key question for me now is the extent to which inflation settles at the 2% target in an enduring way.”
Bailey also highlighted the dilemma that the MPC faces: weakness in recent labour market data indicates a faltering economy, but “on the other hand, inflation expectations have not yet shifted downward sufficiently following the past few years of persistent above-target inflation”.
Governor of the Bank of England Andrew Bailey once again cast the deciding vote, opting for a 25 basis point cut to UK interest rates.
What does an interest rate cut mean for my pension?
Interest rate changes can have a big impact on retirees' income, for better or worse.
Adam Cole, retirement specialist at Quilter, said: “An interest rate cut can have very different effects across the pensions landscape, and the impact will depend largely on the type of pension someone holds and what they are planning to do with it.”
Impact on defined benefit pensions
If you have a defined benefit pension, lower interest rates could be good news. This is because they tend to push up transfer values – the amount of lump sum you could get instead of receiving a guaranteed, regular income.
But higher transfer values are not automatically a green light to transfer.
“Giving up a guaranteed, inflation-linked income for life remains a significant step, and one that should only ever be considered with specialist advice,” Cole cautioned.
Impact on defined contribution pensions
If you have a defined contribution pension – like the majority of people – the impact of a base rate cut depends on how it is invested.
Rate cuts tend to be good for equities, so if your pension is heavily invested in shares it could get a boost. But they also tend to push bond yields lower, which can affect the long-term income potential of lower-risk assets.
“This highlights the importance of asset allocation and not viewing pensions purely through the lens of short-term interest rate moves”, Cole said.
Impact of an interest rate cut on annuities
Annuity pricing remains closely linked to gilt yields, meaning any sustained move lower in interest rates would be expected to put downward pressure on the income available to new annuity buyers.
Yet ahead of the base rate cut, gilt yields remained stubbornly high. As a result, annuity rates remain among the most competitive seen in the past decade.
For example, at the start of this year, a Canada Life benchmark lifetime annuity purchased with £100,000 would have provided an annual income of around £6,800 for a healthy 65-year-old.
Yesterday, improved rates mean the same individual could secure approximately £7,300 per year – an increase that amounts to nearly £9,500 in additional income over a 20-year retirement, by Canada Life’s calculations.
Could falling interest rates help boost UK stocks?
The FTSE 100 is set for its best year since 2013, and looks likely to deliver better returns through 2025 than the S&P 500.
But the large-cap index generates most of its revenue from overseas. Small- and mid-cap UK stocks haven’t had quite as much joy so far this year, with the FTSE 250 returning around 10% this year.
If Bank of England governor Andrew Bailey is correct in his view that inflationary pressures are coming under control, then falling interest rates could be good news for more domestically-focused UK stocks.
“UK household balance sheets are healthy, and savings rates elevated,” said Alex Wright, portfolio manager of Fidelity Special Values. “With inflation easing and interest rates likely to follow, improving confidence could support consumption.”
Read more in senior writer Dan McEvoy's article on the prospects for UK stocks in 2026 here.
Falling interest rates could be good news for more domestically-focused UK stocks
Interest rates on savings set to slip
The base rate cut is good news for borrowers but a blow for savers. Interest rates on savings accounts are likely to slip further, so savers looking to make their cash work harder may want to act now and secure the best savings rates on the market.
If you’re willing to lock your savings away, you might want to consider the top fixed rate savings accounts. At the time of writing, the top one-year fixed savings account is the One Year Fixed Term Deposit from Al Rayan Bank Meteor Savings, which pays an expected rate of 4.55%.
The latest inflation reading came in at 3.2%, so make sure your savings are earning more than this, to prevent your money from being eroded by inflation. Don’t miss our best inflation-beating savings accounts guide.
When deciding where to put your money, consider whether you will need to pay tax on the savings interest. There are various allowances so you can earn some interest before you have to pay tax on it – such as the personal allowance, if you haven't already used that on other income, and the starting rate for savings. You won't qualify for the latter if your other income is 17,570 or more.
Basic and higher rate taxpayers get a personal savings allowance. This means you can earn £1,000 in savings interest tax-free if you're a basic rate taxpayer, or £500 if you're in the higher tax band. Tax on savings interest is currently applied at your marginal tax rate – eg 20% for basic rate taxpayers. However, the tax rate for savings income will rise by two percentage points from April 2027.
You can shield your savings from the taxman by putting it in a cash ISA. You can put up to £20,000 into ISAs each tax year – although under 65s will be limited to putting no more than £12,000 into cash ISAs from 6 April 2027.
Read more: How to shield savings from tax if you’ve used up your ISA allowance
It's recommended that you have some cash in easy to access savings, in case of an emergency. The amount will depend on your age and personal circumstances but, for working people, the general rule of thumb is to have enough to cover three to six months of essential spending. Once you have an emergency savings pot, you might want to consider investing some of your savings.
What do falling interest rates mean for mortgages?
A fall in base rate is usually mirrored in mortgage rates, as base rate is the rate charged by the Bank of England (BoE) to smaller banks and building societies to borrow money. It is also the rate of interest the BoE pays to commercial banks, building societies and financial institutions that hold money with it.
When you will see a change in your mortgage rate is dependent on the type you’ve taken out.
Tracker mortgages are directly pegged to the base rate so any change is likely to happen quickest.
Those on standard variable rates may be the next to see a change. That said, you might not see much change as lenders are not obliged to pass on any base rate cut to those with an SVR.
Following the announcement of today's base rate cut, Nationwide Building Society said it will lower the rate on its Standard Mortgage Rate (SMR), its SVR-equivalent, from 6.74% to 6.49% on 1 January.
Those on a fixed-rate mortgage won’t see a change until their deal comes to an end.
David Hollingworth, associate director at mortgage broker L&C Mortgages, said it could be worth opting for a tracker mortgage over the longer term, with interest rates forecast to fall further in 2026.
“Tracker rates have been gradually closing the gap on fixed rate options but are still behind the best of the fixes. However, with more base rate cuts expected next year we will potentially see more borrowers wondering if following rates down could make for a better option in the longer run,” Hollingworth said.
Beat low rates on savings
While interest rate cuts are great for borrowers, for savers it means your money may have to work harder to beat inflation.
While there are some savings accounts that beat inflation (for now), over the long term, you face the risk of inflation eroding the value of your cash – this basically means your money will be worth less in years to come.
To keep up, investing is the key. You will have heard a lot recently about investing. As interest rates on savings come down, and they will, now is the time to turn to investing to really grow your savings and build financial resilience against future rate cuts, which are expected in 2026.
If you put £1,000 into savings today and then paid in £100 a month over 10 years, you will have £13,000 and it would be worth £15,358 with interest at 3% a year – that’s £2,358 interest.
Invest the same, you could end up with £20,287, earning £7,287 interest, with an estimated 8% annual return (it could be higher but also lower), Hargreaves Lansdown's calculator shows.
Better yet, stick it in stocks and shares ISA to shield it from the taxman.
See our guide on how to start investing for more.
Deutsche Bank: three things today’s UK interest rates decision tells us
Sanjay Raja, chief UK economist at Deutsche Bank, draws three key takeaways from today’s MPC meeting.
“First, as has been a long-standing theme for the BoE, divisions within the MPC remain. The December decision came with another split vote with five members voting for a quarter-point rate cut, and four opting to hold Bank Rate at 4%,” Raja said.
“Second, Bank Rate is inching its way towards a more 'neutral' policy setting. And the scope for more rate cuts is limited, with the Bank sending its more explicit message yet on the path for policy: ‘judgements around further policy easing will become a closer call’.
“Third, the trade-off between a deteriorating labour market and falling inflation will complicate the MPC's path ahead. Despite a subtle push to shift away from a quarterly pace of rate cuts, many on the committee continue to put more weight on downside risks to activity (and the labour market).”
When is the MPC’s next base rate announcement?
The MPC’s next base rate decision will be confirmed on 5 February – the first announcement of eight in 2026.
And with that, we’re leaving you for today. Thanks for following our live coverage, but keep a watch on the MoneyWeek site for future updates on what today’s decision means for your finances.