Borrowers across Britain who are currently tied into mortgage or loan repayment schemes could be set for welcome tidings, industry analysts suggest. The Bank of England is poised to slash interest rates to their lowest level in almost three years, delivering what economists describe as « festive news » for those with outstanding debt.
The Bank’s Monetary Policy Committee (MPC) is broadly expected to trim interest rates from 4% to 3.75% this Thursday. Such a reduction would bring borrowing costs down to their most affordable level since early February 2023.
The impending verdict from policymakers, representing their final decision of the year, arrives alongside economic figures showing UK inflation is cooling. The Consumer Prices Index (CPI) inflation fell to a four-month low of 3.6% in October as gas and electricity tariffs rose more gradually than in the preceding year.
Financial experts anticipate that weakening inflation, alongside other signs of economic deceleration, will encourage policymakers to implement a rate reduction next week.
Laith Khalaf, head of investment analysis at AJ Bell, described a potential rate cut as « festive news for borrowers of all stripes ». He added: « The Bank of England will be focused on hitting the 2% inflation target here in the UK, and for the time being that means loosening policy. But we shouldn’t expect a cascade of rate cuts next year.
« Previous monetary easing will still be working through the system and greasing the wheels, but fresh stimulus could be in short supply throughout 2026. » The forthcoming decision also follows last month’s autumn Budget, which some economists argued was less likely to curb inflation than they had expected.
Prior to the Budget, there were rumours that the Government might choose to raise income tax rates, which could have exerted downward pressure on inflation – but this did not come to pass. Philip Shaw, an economist at Investec, stated that the tax measures introduced by Chancellor Rachel Reeves « do not begin to bite until 2028-29 and therefore are of relatively little significance in the current interest rate debate. »
He further commented: « That said, we would note that the overall fiscal stance is relevant thanks to previous Budget measures weighing on the economy, notably the continued freeze in income tax thresholds. » Andrew Goodwin, chief UK economist at Oxford Economics, remarked: « A rate cut is likely, though it is a closer call than markets think it is.
« The committee is deeply divided and four out of nine officials are unlikely to vote for the cut. » He suggested the vote will « hinge solely » on the Bank’s Governor, Andrew Bailey, who has indicated he believes the inflation outlook is improving.
The US Federal Reserve has made the decision to slash interest rates this week to their lowest point since 2020, with its chair Jerome Powell stating that the central bank will be meticulously evaluating economic data in the coming months.
What will happen to me if interest rates go down?
A reduction in interest rates directly impacts those repaying loans or mortgages with a variable interest rate. However, individuals with a fixed interest rate are likely to remain unaffected, depending on the duration of their contract agreement.
Should the bank opt to lower interest rates, some may see a decrease in their repayment costs. If you’re uncertain about how an alteration in interest rates could impact your specific mortgage, numerous mortgage calculators can be found on banking and financial websites.
