The Bank of England cut the base rate by a quarter point to 4.75%

The move was widely expected, and the Monetary Policy Committee (MPC) voted 8-1 in favour of the move.

The MPC’s report indicates that while base rates will continue to fall next year and into 2026, they may fall more slowly, and they may settle at a slightly higher rate than previously expected. This is largely because the Budget is considered to have been inflationary. The measures announced in the Budget are set to boost GDP growth in the short-term (next year) through tax-funded spending, and this will feed through, via higher demand, to higher prices.  (GDP growth is expected to then fall back in years 3,4&5 of the Parliament).

Capital Economics now expects the base rate to fall to 3.5% in early 2026, not 3% as previously forecast, and says that the base rate may settle there.

Even so, more rate cuts through next year should be good for demand in both the residential and commercial sectors.

The one complicating factor for mortgage rates right now however is that the 10-year gilt yield, which informs swap rates which in turn determine the pricing of fixed-rate mortgages has risen in the week since the Budget, meaning that we may not see immediate falls in the rate of fixed-rate loans. Even so, mortgage rates remain much lower than last summer last year when 2-year fixed rates started with a 6. Now there are deals available at around 4.8%. Those borrowers on variable-rate mortgages (around 600,000) will see an immediate cut in their monthly bills.

The US election was not mentioned  in the MPC notes, but Donald Trump’s victory sent Treasury yields soaring as Donald Trump is generally considered to be more in favour of policies that are expansionary and inflationary (tax cuts and import tariffs).  As a result, rate cuts in the US may also be slower to materialise. It is hard to confirm this however until Mr Trump’s policies become clearer – probably at the start of next year. There is no official link between US base rates (Fed rate) and UK base rate – but movements in each affect the currency exchange, and higher US rates would be factored into any future MPC decisions.

The next base rate decision is a pre-Christmas special on 19 December – but currently expectations are low that there might be another rate cut at this point.