Bank of England cuts base rate to 3.75% – here's what it means for your mortgage, savings and more

Martin Lewis: What the cut means for savings, mortgages, loans and more

Reacting to the news on X, MoneySavingExpert.com founder Martin Lewis said:

Why the base rate was cut

The Bank's Monetary Policy Committee (MPC), which determines the rate, voted by a majority of five to four to cut the rate to 3.75% (four members voted to hold the rate at 4%).

The base rate is used by the Bank of England as a tool to control inflation (the rate at which prices rise). In very simple terms, the theory is that higher interest rates mean people spend less on non-essentials – and when overall spending in the economy falls, price rises slow down.

The Bank has a target – set by the Government – of 2% for the Consumer Prices Index (CPI) measure of inflation. The latest figures show that CPI inflation was 3.2% in the 12 months to November this year, down from 3.6% in October – though still above the Bank's target of 2%.

Commenting on this latest decision, the Bank said that "the risk from greater inflation persistence has become somewhat less pronounced", adding that the base rate was "likely to continue on a gradual downward path". It's the fourth time the base rate has been cut this year. In January, the rate stood at 4.75%.

What the base rate cut means for your money

The base rate is used by the central bank to charge other banks and lenders when they borrow money – so it influences what borrowers pay and what savers earn. Martin's summarised the key points above, but here's a bit more detail on each one...

Mortgages

• If you're on a fix, there's no change until your fix ends. If that's within the next three to six months, you might want to search for a new mortgage now – and don't forget to check product transfer offers from your existing lender. In some cases you can even lock in a rate and ditch it later if cheaper deals emerge.
  
  Holly Tomlinson, financial planner at advice firm Quilter, said: "Many lenders allow you to book a rate in advance, and you can review the market again before your new deal starts. Just check whether your lender offers flexibility to change without penalties, as terms vary."

• If you're on a tracker, your rate will drop by 0.25 percentage points. The reduction is equivalent to roughly £15 a month lower repayments per £100,000 of mortgage debt.

• If you're on a variable rate, this will likely drop by up to 0.25 percentage points. It could be a bit less depending on the lender and the exact mortgage you have.

• We'll be asking all major lenders when they plan to cut their tracker and variable rates. We'll publish a lender-by-lender breakdown when we know more.

Savings

Variable rate savings – mainly easy-access accounts – will likely drop by 0.25 percentage points over the coming weeks.

Fixed-rate savings will have already factored in some of this cut, but they may come down further. If you have money you can lock away, you want rate certainty and you're considering fixing, the safest bet is to do so today (Thursday 18 December).

Either way, make sure you know how much you're currently earning on your savings – if it's anything less than 4%, you can quickly and easily boost it. For help finding the right account for you, try our brand-new Savings Picker.

Credit cards

Credit cards are mostly unaffected as their interest rates are already significantly above the base rate, as Martin notes above.

If you're paying credit card interest, check if you can save £1,000s by shifting the debt to 0% using a balance transfer card. Right now you could get up to 35 months interest-free.

Loans

Existing loans are unaffected as they're usually fixed rates. New loan rates are typically set on interest rate forecasts rather than base rate moves, but the cheapest new loan rates could come down very marginally.