Global Rate Cuts Signal Change:
What the Fed’s Latest Move Means for UK Mortgage Rates

In December 2025 the United States Federal Reserve cut its benchmark interest rate to 3.50%–3.75%, marking the third consecutive reduction as policymakers respond to a cooling labour market and easing inflation pressures. Markets globally have taken note — and this shift may have meaningful implications for UK mortgage pricing, Bank of England policy expectations and wider housing market conditions.

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What the Fed’s Latest Rate Reduction Was

The Federal Reserve reduced the federal funds rate by 0.25 percentage points in December 2025, taking it to a range of 3.50%–3.75%. This move followed earlier cuts through the year and reflects a growing focus on supporting economic activity while inflation shows signs of moderation.

US policymakers remain divided on how far and how fast rates should fall from here. Some members argue there is room for further easing if inflation continues to cool, while others favour a more cautious approach, citing lingering price pressures and global risks.

Why a US Rate Cut Matters Globally

A US rate cut does not directly set interest rates in the UK. However, it sends a powerful signal about the direction of global monetary policy and influences financial markets that UK lenders rely on.

Lower US rates can reduce US Treasury yields, which often act as a reference point for global bond markets. When yields fall internationally, borrowing costs for banks can ease, helping to lower wholesale funding costs that feed into mortgage pricing across countries, including the UK.

Recent moves by other central banks following the Federal Reserve underline how interconnected global rate expectations have become. Together, these shifts can shape investor sentiment and the pricing of long-term interest rates well beyond national borders.

Bank of England And The UK Interest Rate Outlook

In the UK, the Bank of England has held the base rate at 4.00% in recent meetings, but expectations have shifted notably in recent weeks. Financial markets are increasingly pricing in a cut to 3.75% as inflation shows clearer signs of easing and economic growth remains subdued.

UK inflation, while still above the Bank of England’s 2% target, has moderated compared with earlier peaks. This has strengthened the case among some policymakers for beginning a gradual easing cycle, although decisions remain finely balanced and dependent on incoming data.

The Monetary Policy Committee has emphasised that any reductions in Bank Rate are likely to be cautious and data-dependent, rather than rapid or guaranteed.

How Global Rate Moves Influence UK Mortgage Pricing

UK mortgage rates, particularly fixed-rate deals, are driven less by the headline Bank Rate and more by expectations of where interest rates will be over the coming years. These expectations are reflected in swap rates and gilt yields, which are influenced by global financial conditions.

When major central banks such as the Federal Reserve signal a shift towards lower rates, swap rates often fall in anticipation of easier monetary policy ahead. This can reduce the cost for lenders of funding fixed-rate mortgages, allowing pricing to soften over time.

That said, mortgage rates do not move in a straight line. Lenders also consider competition, funding structures, risk appetite and operational costs. As a result, changes tend to be gradual and can vary significantly between lenders and products.

What This Could Mean For Borrowers

For homeowners, first-time buyers and those approaching the end of a fixed-rate deal, the direction of travel is important. Expectations of lower global and UK rates have already contributed to some lenders trimming fixed mortgage pricing in recent months.

If global easing continues and the Bank of England begins cutting rates in 2026, this could support further, incremental reductions in mortgage rates. However, this is unlikely to mean a return to the ultra-low rates seen before 2022, and affordability assessments will remain strict.

Borrowers should also be aware that markets often price in expected rate cuts well before they happen. This means some of the benefit of future reductions may already be reflected in today’s mortgage offers.

Key Numbers

Bank of England Base Rate: 4.00%
Expected near-term Base Rate (market pricing): 3.75%
US Federal Reserve rate range: 3.50%–3.75%
UK CPI inflation: around the mid-3% range

Figures as of December 2025, London.

The information provided in this article is for general guidance only and does not constitute personal or regulated financial advice. If you’d like to understand what these moves could mean for you, speak to Mortgage One, we can explain your options and timings based on your specific circumstances.

Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.

FAQs

1) What has the US Federal Reserve done to interest rates?
The Federal Reserve has cut its benchmark interest rate three times in 2025, most recently to a range of 3.50%–3.75%, signalling a shift towards looser monetary policy.

2) Does a US rate cut directly affect UK mortgage rates?
No. However, it influences global funding markets and interest rate expectations, which can indirectly affect the costs faced by UK mortgage lenders.

3) Is the Bank of England expected to cut interest rates?
Markets increasingly expect the Bank of England to begin cutting rates, potentially starting with a reduction to 3.75%, if inflation continues to ease.

4) Why do fixed mortgage rates move before Bank Rate changes?
Fixed mortgage rates are influenced by swap rates and market expectations of future interest rates, which can change ahead of official Bank Rate decisions.

5) Will mortgage rates keep falling in 2026?
That will depend on inflation, economic growth and central bank decisions. The current outlook suggests gradual easing rather than sharp falls.

6) Could lower rates push house prices higher?
Lower borrowing costs can support demand, which may put upward pressure on house prices, though this also depends on supply, wages and wider economic conditions.

7) Should borrowers delay decisions in the hope of lower rates?
Mortgage pricing already reflects market expectations. Waiting carries risks as rates and product availability can change, and outcomes are not guaranteed.