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17/12/25 3:30 pm
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The Bank of England has held UK interest rates at 3.75% but signalled that a cut could soon be on the way.
Its Monetary Policy Committee voted by a majority of 5–4 to maintain the rate; four members voted to reduce it to 3.5%. The Bank said monetary policy was being set to ensure that inflation not only reached 2% but remained sustainably at that level in the medium term.
While inflation crept up slightly to 3.4% at the end of last year, it is still expected to fall back towards the Bank of England’s target later in 2026, which keeps the door open for further rate cuts this year - with the next announcement due on 19th March.
Governor Andrew Bailey (pictured) told The Telegraph: “We now think that inflation will fall back to around 2% by the spring. That’s good news. All going well, there should be scope for some further reduction in Bank Rate this year.”
Financial experts believe this environment of stable inflation and steady interest rates provides some clarity for investors. Sarah Thompson, group financial services director at Mortgage Scout, part of LRG, says the decision reflects a period of growing stability rather than uncertainty in the mortgage market.
“Mortgage rates remain broadly stable,” says Thompson. “Some lenders seem to be making marginal pricing adjustments to help manage volumes and protect service levels, rather than reacting to inflation or base rate expectations.”
She adds that lenders are becoming increasingly flexible, with income multiples of 6, 6.5 and in some cases 7 times income now achievable depending on circumstances. “Combined with steady pay growth and more measured house price increases, this is giving borrowers greater headroom and more confidence to move or refinance.”
However, Colin Bell, founder of mortgage lender Perenna, says it’s increasingly clear that rate decisions alone aren’t shifting the dial on homeownership. “The average first-time buyer is now well into their thirties, and around a third of renters aged 25–44 say they don’t expect to ever own a home.
“We need to stop treating rate cuts as the solution and focus instead on products and policy that give borrowers more control, flexibility and longer-term stability. That’s where real progress will come from.”
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