The MPC voted by a majority of 5:4 to cut the base rate, with four members voting for it to remain at 4% as they did not feel the monetary policy stance was meaningfully restrictive.
The move follows two consecutive holds at 4% in November and September after a cut to 4% from 4.25% in August.
The cut had been widely expected by the markets since last month, given the high unemployment and poor wage growth figures that were revealed in November.
Additionally, inflation seemed to have peaked – seeing a reading of 3.2% yesterday for November – and the economy shrinking in October also played a part in the MPC’s decision to cut the base rate.
In the committee’s minutes of the meeting, it said inflation was set to temporarily rise in December before falling to 3% in Q1 next year. By Q2, the MPC expects inflation to be closer to its 2% target.
Lenders have been ‘ahead of this particular curve’
John Phillips, CEO of Just Mortgages and Spicerhaart, said: “The central bank has delivered a festive boost for borrowers, confirming a rate cut a week before Christmas. Given the timing, we may not see an instant reaction from potential buyers or movers, but combined with the positive news on inflation yesterday, it will certainly go a long way in boosting confidence and encouraging more clients to get their plans back on track. With Boxing Day always busy for property searches, we could certainly be in for a positive start to the new year.
“Now is absolutely the time for brokers to be communicating these positive headlines to borrowers and reminding potential buyers and movers of everything the mortgage market has to offer – particularly recent activity from lenders on rates and criteria. While the signs look promising, a new year bounce is far from a given. We have to play our part in achieving this by educating clients, nurturing confidence and facilitating transactions.”
Steve Cox, chief commercial officer at Fleet Mortgages, said the decision came as little surprise.
He added: “In many ways, a number of lenders have been ahead of this particular curve, having been actively pricing it into products.
“We’ve seen a flurry of mortgage rate cuts across the residential and buy-to-let sectors over the last week or so, perhaps in anticipation of this decision and in an attempt to grow volume and pipeline as we move into 2026. In the buy-to-let space, product pricing continues to improve, supported not just by this rate change, but by swaps [that] are increasingly aligned with the view that further cuts could follow into 2026.”
He added: “For landlords, this is a positive way to end the year, and a promising start to 2026. With greater certainty following the Autumn Statement – including clarity on tax changes that won’t bite until April 2027 – and with the Renters’ Rights Act coming into force next year, any opportunity to reduce monthly mortgage costs will be welcomed. Landlords coming to the end of two-year deals in particular will find a much more competitive rate environment than they did in 2023 or early 2024, and this should support renewed purchase and refinance activity in the months ahead.”
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