# Bank of England cuts interest rates to near three-year low

By David Fell — 2025-12-18

David Fell, lead analyst at Hamptons and Connells Group, said: “While financial markets had already pencilled in today’s rate cut by the Bank of England, inflation is running well below expectations. While officially the Bank thinks it will take until the end of 2027 for inflation to return to its 2% target, it’s looking increasingly likely that it will happen sooner. So far, the Bank of England has cut cautiously, reducing rates much more slowly than it hiked them. However, if inflation continues to crater, there may be growing pressure to cut faster.

“Falling inflation expectations are likely to mean cheaper mortgages over the coming weeks. It’s not inconceivable that by Christmas, rates could slip below 3.5% for those with the largest deposits, heralding the return of rates which hadn’t been on offer since Summer 2022. This would mark a milestone, with mortgage rates falling to around half the level they were when they peaked two and a half years ago.

“These lower rates will underpin falls in house prices across London and the South East in particular, places where higher mortgage rates have hurt buyers’ pockets hardest and pushed down prices fastest. Here, a typical second stepper who’s able to secure a 3.5% rate over the coming weeks will be paying around £400 or 23% a month less than if they’d have borrowed the same amount two years ago.”

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