Interest rates and Bank Rate: our latest decision

Next due: 5 February 2026

Target: 2%

Our latest decision: interest rate cut to 3.75%

Inflation has continued to fall, so we have been able to cut rates to 3.75%

We still think that interest rates are on a gradual downward path

But with every cut in Bank Rate, how much further we go becomes a closer call

18 December 2025

The Monetary Policy Committee (MPC) is responsible for maintaining monetary stability by working to keep inflation low and stable. It meets eight times a year to decide what interest rate is needed to return inflation to, or keep it at, the 2% target over time.

Here are four key points about the decision:

We have cut Bank Rate (interest rates) by 0.25% to 3.75%. Since August 2024, we have cut rates six times.
Inflation has fallen a long way from its peak of over 10% three years ago, and is 3.2% in the latest measure.
We think that Bank Rate is likely to fall gradually further in future, but that will depend on whether variables like pay growth and services inflation continue to ease.
We set interest rates to make sure that inflation falls all the way back to the 2% target and stays there.

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Find out more

Read the latest Monetary Policy Summary and Minutes

What are interest rates?

Interest is what you pay for borrowing money and what banks pay you for saving money with them.

If you are borrowing money, the interest rate (or lending rate) is the amount you are charged for doing so. If you are a saver, the interest rate (or savings rate) tells you how much money will be paid into your account.

Both are expressed as a percentage of the total amount you have borrowed or saved.

So, if you borrowed £100 with a 1% lending rate, you’d have to pay £101 a year later. If you put £100 into a savings account with a 1% interest rate, you’d have £101 a year later.

Latest and upcoming MPC dates

What is Bank Rate?

It is the core interest rate in the UK and it is our job to set it.

It is the rate of interest we pay to commercial banks, building societies and financial institutions that hold money with us. It is also the rate we charge on loans we may make to them. It, therefore, affects their own lending and savings rates. For example, when we raise the Bank Rate, banks will usually increase how much they charge their customers on loans and the interest they offer on savings. And the reverse if we lower it.

Glossary

Bank Rate over time

Official Bank Rate history data from 1694

How do interest rates affect inflation?

Interest rates influence how much people spend, and that affects how shops and businesses set their prices.

Higher interest rates mean higher payments on many mortgages and loans, meaning people must spend more on them and less on other things. Saving becomes more attractive because the returns are higher and it becomes more expensive to take out a loan. These things all discourage consumers and businesses from spending.

When customers spend less, businesses are less willing or able to raise their prices. When prices don’t go up so quickly, inflation falls.

Lower interest rates can have the reverse effect. If payments on mortgages and loans go down, people will have more money to spend on other things. Savers will get a smaller return and, therefore, may feel less motivated to put their money away. It will be also cheaper for potential borrowers to take out a loan – and use that money to make big purchases.

All of these factors encourage spending. When people spend more, this means demand is high. And when demand is high, businesses often raise their prices, pushing up inflation.