Bailey’s “Close Call”: Why Your Mortgage Might Not Fall Further Soon

The Bank of England has confirmed a rate cut to 3.75%, but homeowners hoping for a plummeting mortgage rates in 2026 may need to temper their expectations. Governor Andrew Bailey explicitly stated that future rate reductions are not guaranteed, describing upcoming decisions as “closer calls” with every step they take. This cautious tone dominated the announcement, despite the immediate relief the cut provides.
The reduction was driven by a drop in headline inflation to 3.2% and signs that the “hump” of price rises has passed. However, the Bank is acutely aware of underlying pressures. Wage growth remains robust, with employers expecting to hike pay by 3.5% in 2026. For the Bank, this risks creating a wage-price spiral that could keep inflation higher for longer.
Inside the MPC meeting room, the atmosphere was reportedly tense. Four members voted against the cut, arguing that inflation in the service sector is still too high. They believe that changes in how companies set prices have become “lasting,” meaning the old economic models might be underestimating the danger of cutting rates too soon.
On the political front, the cut provides some breathing room for the government. Chancellor Rachel Reeves highlighted the reduction as a sign of economic stabilization. Yet, she faces criticism from business leaders who blame her recent budget—specifically the £25bn hike in national insurance—for dampening business investment and slowing hiring, which the Bank acknowledged as a “one-off shock.”
Ultimately, this rate cut is a compromise. It acknowledges the reality of a shrinking economy—GDP fell unexpectedly in October—while trying to keep inflation expectations anchored. For the average consumer, it means slightly cheaper borrowing costs today, but a highly uncertain path for the year ahead.