7:30 am, December 19, 2025
The Bank of England’s decision to slash interest rates is set to provide a ‘significant shot in the arm’ to the motor trade.
That is according to automotive experts, who have said that the move could be ‘the green light the market has been hoping for’.
The central bank yesterday (Dec 18) reduced rates to their lowest levels in nearly three years, down from 4% to 3.75%.
Governor Andrew Bailey said the UK has ‘passed the recent peak in inflation and it has continued to fall’, allowing the bank’s Monetary Policy Committee (MPC) to cut borrowing costs for the fourth time this year.
The news has been welcomed by the automotive industry, with analysts backing the move to ‘relieve some pressure on affordability and business costs’.
In response to the announcement, Ian Plummer, chief commercial officer at Auto Trader, said: ‘The rate cut is the green light the market has been hoping for, turning consumer intent into action by putting more money back into the pockets of car buyers and lowering the hurdle of monthly finance costs.
‘With nine in ten buyers already viewing motoring as a necessity, it should provide a significant shot in the arm for consumer confidence.
‘For the majority of buyers who rely on finance, even a small cut can result in a meaningful reduction in monthly payments, making their next vehicle more affordable.
‘We already see very strong levels of car buying intent on our platform, with nearly 2,000 visits every minute, and this easing of financial pressure should accelerate that momentum.’
Economists think the pace of interest rate cuts will slow next year as the Bank gets closer to what it deems a ‘neutral’ rate and inflation nears its 2% target level.
The latest reduction takes the bank’s base interest rate to its lowest level since early 2023.
The nine-person committee voted five to four for a cut, withBailey among those preferring to lower rates at the Bank’s final meeting of the year.
The decision comes after official figures showed Consumer Prices Index (CPI) inflation fell sharply to 3.2% in November, from 3.6% in October.
Looking forward, experts say that, while the cut is a step in the right direction, the automotive industry will still need to find extra stability in 2026.
Philip Nothard, insight director at Cox Automotive, said: ‘The Bank of England’s decision to reduce the base rate by 0.25% to 3.75% is a step in the right direction for the automotive industry, especially following a challenging year.
‘While the cut will help relieve some pressure on affordability and business costs, confidence remains fragile across the board, and we will need to find means of bringing further stability to the market in 2026.’
Despite Nothard’s caution, Plummer thinks that thinks that the used car market is well-placed, heading into the new year.
He added: ‘As we look ahead to 2026, where we predict the market will finally return to its pre-pandemic scale of around 10 million transactions, this cut acts as an important tailwind.
‘It is not just a win for consumers; it’s also a stimulus that will help retailers maintain the pace we have seen in the used car market, particularly as electric vehicles reach price parity across key segments, and stock is turning faster than ever.’
Elsewhere, the MPC said it was expecting the economy to show no growth over the final quarter of 2025.
This comes after official data showed a 0.1% contraction in October, which was weaker than it had been expecting.
Meagre economic growth as well as a weakening jobs market and slower pay growth pointed to underlying inflation pressures reducing, the Bank said.
However, the four MPC members who voted to keep interest rates unchanged were more concerned about prolonged inflation persistence, particularly within the services sector and among wage growth.
