The Bank of England's Monetary Policy Committee has voted 5-4 to reduce Bank Rate from 4% to 3.75%.
Despite four members voted to maintain Bank Rate at 4%, the cut was widely expected following this week's unemployment and inflation figures.
CPI inflation came in at 3.2% for November, down from 3.6% in October and well below consensus forecasts of 3.5%.
In its meeting, the MPC said the risk from greater inflation persistence has become somewhat "less pronounced" since the previous meeting, while the risk to medium-term inflation from weaker demand remains.
Bank Rate has now been reduced by 150 basis points since August 2024.
The MPC said that "on the basis of the current evidence, Bank Rate is likely to continue on a gradual downward path... but judgements around further policy easing will become a closer call".
At its last meeting in November, the Committee held interest rates at 4% in a narrow 5-4 vote, with four members opting for a quarter percentage point reduction to 3.75%.
Charles Resnick, chief finance officer at Afin Bank, said: “The Bank of England is walking a bit of a tightrope at the moment, balancing its aim of returning inflation sustainably to its 2% target, below the current rate of 3.6%, while being cautious not to ease policy too quickly while domestic cost pressures persist.
“Although today’s cut to the Base Rate was not a surprise, it could easily have gone the other way with interest rates left unchanged. You only have to look at the last MPC meeting in November, when the vote was 5-4 in favour of keeping the rate flat, to see there is a difference of opinion within the Committee."
Kevin Shaw, national sales managing director at LRG, commented: "Today’s reduction in interest rates is very welcome news - for homeowners, buyers, property professionals, and no doubt Government ministers.
"This warming news is set against a chilly backdrop: unemployment has increased to 5.1%, while the November Budget tightened the fiscal screws. Inflation, however, has eased to 3.2% and, thanks to today’s cut, looks likely to continue on that trajectory.
"With a reduction in interest rates we expect an increase in activity and therefore transactions. Across LRG brands, applicant numbers are already up 15% year-on-year in December and we’re seeing a significant number of vendors ready to launch in early January.
"Two-year and five-year fixed rate mortgage pricing has already shifted in anticipation and tracker borrowers will also feel the benefit.
"In the run up to the November Budget it felt like the market has been driving with the handbrake on, but it was released following the Chancellor’s speech on 26 November. In fact from a property perspective the Budget proved more neutral than the rumour mill was suggesting.
"In the meantime, we anticipate a busy start to 2026, which will then gain momentum potentially two further rate cuts to come resulting in greater affordability and less volatile market conditions."
Paresh Raja, CEO of Market Financial Solutions, said: “This is what so many were hoping for – the Bank of England has sent a clear signal that it wants to reduce the cost of borrowing, and we expect the property market to respond quickly. Much of October and November’s stalled activity ahead of the Autumn Budget is already now flowing through, and today’s cut will undoubtedly add further momentum. Yes, the market will slow over the festive period, but once we're into the new year, we should expect to see greater confidence and demand among property investors and homebuyers. So, lenders must be ready to support brokers and borrowers as activity accelerates. In doing so, we can lay the foundations for a robust and growing property market in 2026.”
Luke Bartholomew, deputy chief economist at Aberdeen Investments, added: "Given the run of softer inflation data, weaker labour market, and disappointing GDP growth recently, the cut today was widely expected. But the fact that the vote was so close suggests that many policymakers are still not convinced that the economy is fully out of the woods yet when it comes to inflation. However, with the economy set to remain weak into next year, and various measures in the recent Budget designed to push down on headline inflation, we think there are more rate cuts to come, with Bank Rate eventually heading back towards 3% late next year."
