Bank of England Cuts Base Rate to 3.75%
What Just Happened?
In what's become the highlight of the financial calendar's end-of-year festivities, the Bank of England's Monetary Policy Committee voted 5-4 to reduce the base rate from 4% to 3.75% – marking the fourth cut of 2025 and taking borrowing costs to their lowest level since February 2023.
Why Now?
The decision comes on the back of encouraging economic signals: inflation dropped to 3.2% in November (down from 3.6% in October and below the Bank's forecast of 3.4%), the labour market is cooling with unemployment rising to 5.1%, and economic growth remains subdued with GDP showing no growth expected in Q4 2025.
Governor Andrew Bailey cast the deciding vote in favour of the cut, signalling the Bank's confidence that inflation is on a "gradual downward path" toward the 2% target.
Base Rate Journey: From Peak to Present
The base rate peaked at 5.25% in August 2023 and has been gradually declining throughout 2025 as inflation pressures have eased.
What This Means for Small Business Owners
Commercial Mortgages
- Variable-rate commercial mortgages will see immediate reductions
- Fixed-rate pricing may soften for new deals
- Refinancing opportunities for businesses on SVR
- Better affordability for property purchases
Business Loans
- Tracker loans will drop by 0.25%
- Improved cash flow from lower repayments
- New borrowing becomes more affordable
- Equipment finance costs may reduce
Working Capital Facilities
- Overdraft costs likely to fall
- Invoice finance rates may soften
- Revolving credit facilities become cheaper
- Better terms for expansion funding
💡 Smart Business Move
If you're on a commercial mortgage SVR or paying 6%+ on business loans, now's the perfect time to review your arrangements. With more cuts potentially coming in early 2026, locking in competitive rates today could save thousands over the term of your finance.
Impact on Property Investors & Developers
Buy-To-Let Investors
- Tracker BTL mortgages reduce immediately
- Improved rental yields as costs fall
- Portfolio expansion becomes more viable
- Remortgage deals looking more attractive
Property Developers
- Development finance costs decrease
- Better project viability calculations
- Bridging loan rates softening
- Refinance opportunities on existing schemes
Commercial Property
- Commercial BTL rates improving
- Mixed-use property finance more accessible
- Better terms for HMO portfolios
- Competitive rates returning to market
Market Momentum Building
Industry experts expect the property market to respond quickly to today's cut. After the stalled activity following the Autumn Budget, combined with this rate reduction, we're likely to see renewed confidence and demand from property investors heading into 2026.
Homeowners & Residential Mortgages
Variable Rate Mortgages
If you're on a tracker mortgage, your rate will automatically drop by 0.25 percentage points. For a £250,000 mortgage, this could save you approximately £35-40 per month, or around £450 per year.
Standard Variable Rate (SVR)
Those on SVR should see rates fall by roughly 0.25%, though lenders aren't obliged to pass on the full cut. This is the perfect time to consider remortgaging to a competitive fixed deal.
Fixed Rate Deals
While existing fixed-rate mortgages won't change, new fixed-rate deals have been edging down as this cut was widely anticipated. Some lenders are now offering rates we haven't seen since 2022.
Equity Release Customers: Important Considerations
While lower interest rates are generally good news for borrowers, equity release customers need to be aware of both the opportunities and the trade-offs.
The Opportunity
- New equity release plans may offer better rates
- Refinancing existing plans could reduce costs
- More affordable way to supplement income
- Better value for home improvements or family support
The Consideration
- Savings rates will likely fall too
- Income from savings may reduce
- Fixed-term bonds will offer lower returns
- Consider locking in current savings rates now
⚠️ Balancing Act for Retirees
If you're using equity release alongside savings for retirement income, falling interest rates create a mixed picture. While equity release becomes cheaper, your savings income may decrease. It's worth reviewing your overall financial position to ensure you're making the most of current opportunities before rates drop further.
What's Next? The 2026 Outlook
First MPC meeting of the new year. Many economists predict another 0.25% cut could be on the cards if economic data continues to support easing.
JPMorgan's base case forecasts two more cuts during this period, potentially taking the base rate down to 3.25%.
The Bank expects inflation to drop to around 3% in the first quarter, though services inflation remains sticky at higher levels.
The Bank's Cautious Tone
Despite today's cut, the Bank of England signalled that "judgements around further policy easing will become a closer call." Translation: don't expect rate cuts to keep coming at the same pace. The MPC remains watchful of wage growth and inflation pressures, even as economic growth remains weak.
The Savings Side of the Story
It's not all good news – savers are likely to see returns decrease as banks adjust their savings rates downward. However, competition remains fierce in the savings market, with many providers still offering rates above 4%.
💰 Action for Savers
If you have money you can lock away and want rate certainty, consider fixing before rates drop further. Many banks haven't yet adjusted their fixed-rate savings products, giving you a window to secure better returns.
How Can Acorn.finance Help You?
Whether you're looking to take advantage of lower rates on business finance, refinance your commercial property, or explore how these changes affect your property portfolio, we're here to help.
Call Us Today: 07480 801662The Bottom Line
Today's base rate cut to 3.75% represents meaningful relief for borrowers across the board – from small businesses managing cash flow, to property investors expanding portfolios, to homeowners refinancing their mortgages. While the pace of future cuts remains uncertain, the direction of travel is clear: borrowing costs are coming down.
For savers and those relying on interest income (including equity release customers), the picture is more nuanced. While borrowing becomes cheaper, returns on savings will likely decrease. The key is to act strategically – reviewing your current arrangements and making moves before the next round of rate cuts potentially arrives in early 2026.
At Acorn.finance, we've been helping clients navigate rate changes since 1997. Whether rates are rising or falling, our job remains the same: finding you the right funding at the right price to help your business grow and your property portfolio thrive.