Bank of England Base Rate Update: Impact on Business Loans (Dec 2025)

Published: 10 December 2025 | By: Money Navigator Research Team

The cost of borrowing has been the single biggest headache for UK small businesses over the last two years. But with the Bank of England’s Monetary Policy Committee (MPC) due to meet next week on Thursday, 18 December, are we finally about to see some relief?

As of today, the Base Rate sits at 4.0%, having been held steady in November following a cut in August. However, with inflation currently hovering at 3.6% – down from September’s 3.8% – analysts are now pricing in a 90% chance of a further cut before Christmas.

Here is what the latest forecasts mean for your business loans, overdrafts, and cash flow heading into 2026.

The Current Landscape (December 2025)

• Current Base Rate: 4.0%.

• Next Decision Date: Thursday, 18 December 2025.

• Market Forecast: High probability of a cut to 3.75%.

• Inflation Rate: 3.6% (Above the 2% target, but trending down).

In the November meeting, the MPC voted 5–4 to hold rates, a razor-thin split that suggests the “doves” (members wanting to cut rates) are gaining ground. With the economy showing signs of sluggish growth, a December cut is widely seen as a necessary move to stimulate business investment heading into the New Year.

What a Rate Cut Means for Small Businesses

If the Bank does cut rates to 3.75% next week, the impact will vary significantly depending on the type of finance you hold.

1. Variable Rate Loans & Overdrafts

The Good News: If you have a business loan linked to the Base Rate (known as a “Tracker”) or a standard business overdraft, you should see an immediate reduction in your monthly interest payments.

• Example: On a £50,000 tracker loan, a 0.25% cut could save you approximately £125 per year in interest. While not a huge sum, every penny counts for cash flow in the current climate.

2. Fixed Rate Loans

The Neutral News: If you are already locked into a fixed-rate loan (e.g., a 5-year term with Funding Circle or Iwoca), your repayments will not change.

• Strategy: If your fixed term is ending soon, it might be worth waiting until after the December 18 announcement to refinance. Lenders often price their new fixed deals lower in anticipation of a rate cut.

3. Commercial Mortgages

The Mixed News: Mortgage lenders have already started “pricing in” the expected cut. We are seeing 2-year and 5-year fixed commercial mortgage rates dip slightly as lenders compete for market share. If you own your premises, now is a good time to compare remortgage quotes.

The Flip Side: Business Savings

The downside of a rate cut is that it applies to savings, too. If your business is sitting on a cash surplus (e.g., for a VAT bill or tax reserve), the interest you earn on easy-access business savings is likely to drop within weeks of the announcement.

• Action: Consider locking excess cash into a Fixed Rate Bond now before the rates fall. Currently, you can still find business savings accounts offering above 4.0%, but these deals may disappear if the Base Rate drops to 3.75%.

Expert View: “Cautious Optimism”

Most economists agree that while rates are coming down, we are unlikely to return to the near-zero rates of the 2010s. The “new normal” for 2026 is likely to settle between 3% and 3.5%.

“The narrow vote split in November suggests the door is wide open for a December cut. Key data on inflation and the labour market will likely persuade the MPC to vote for a reduction to 3.75% to end the year.” – Yael Selfin, Chief Economist at KPMG UK

Summary: What Should You Do?

1. Check your debt: If you are on a high-interest variable loan, watch the announcement on Dec 18. If rates drop, check your next statement to ensure the savings are passed on.

2. Don't panic buy: If you don't need a loan today, waiting until January 2026 might secure you a slightly cheaper fixed rate.

3. Review savings: If you have idle cash, lock in a fixed savings rate this week before they are withdrawn.