How interest rate cut will impact your finances

"Whether you’ve been eyeing up your first home or are desperate to move up the ladder, there’s a high chance you’ve been stuck watching from the sidelines waiting for rates to settle down. However, the market has already priced in this stability, and mortgage rates have already been on a gradual downward trend over recent months.”

Royal London’s Clare Moffat, comments: "The Bank of England’s decision to reduce the base rate to 3.75 per cent will be welcome news for many households, particularly at this expensive time of year. Christmas spending adds extra pressure, and our Financial Resilience Report shows that one in ten people are already struggling to pay household bills.

“Financial pressures remain high, and for savers, lower rates could mean reduced returns on cash savings. It’s essential that savers shop around to see if there is a better rate available. Building resilience through budgeting, maintaining an emergency fund, and seeking advice on long-term planning remains crucial. For those nearing retirement, consider that lower interest rates might affect annuity rates and income planning – and don’t delay reviewing your pension strategy to ensure it aligns with your goals."

Holly Tomlinson, financial planner at Quilter, says: “The Bank of England’s decision to cut interest rates reflects growing confidence that inflationary pressures are easing, but it should not be interpreted as a signal that borrowing costs are about to fall sharply across the board. With inflation still above target and policymakers keen to avoid reigniting price pressures, this move is best seen as a cautious adjustment rather than a decisive shift towards looser monetary policy, particularly at a time when household finances remain under strain from years of higher prices and frozen tax thresholds.”

Adam Ruddle, chief investment Officer at LV=, says: ““Weaker-than-expected economic growth, which was intensified by the recent UK Budget, meant that a December rate cut by the Bank of England was widely anticipated. While inflation remains above the 2 per cent target, it has recently fallen more than expected, which suggests that, compounded by rising unemployment and a strained economic outlook, we can look forward to further rate reductions over 2026.

“Ahead of Christmas, this reduction will offer relief to households under financial strain, with LV’s latest Wealth and Wellbeing research showing two in five people are worried about the future and more than a third report anxiety about rising everyday costs and energy bills.

“For many, this cut is a welcome lifeline during a challenging festive season.”