Bank of England cuts interest rates to 3.75%

The Bank of England (BOE) has opted to cut interest rates to 3.75%, marking its final monetary policy decision for 2025. The move, decided by a narrow 5-4 vote within the nine-member Monetary Policy Committee (MPC) on Thursday, represents a 25-basis-point reduction in the benchmark rate and the fourth cut seen this year.

The decision to lower rates comes amid a backdrop of underwhelming economic figures, a weakening job market, and a faster-than-anticipated decline in inflation. While a rate cut was widely anticipated by economists, the vote revealed a split within the BOE. Governor Andrew Bailey sided with the more dovish members of the committee. Four policymakers, however, argued that the current inflation rate of 3.2% (November figures) remains significantly above the central bank's target of 2%.

In its official statement, the MPC acknowledged that inflation remains above the desired level but indicated expectations for a quicker return to the target range in the near future. The committee also cautioned that any further easing of monetary policy would be contingent on how the inflation outlook evolves.

The MPC suggested that the Bank Rate is likely to continue its gradual descent based on current data. That said, the reality is a bit more complicated. it also noted that decisions regarding further policy easing will require increasingly careful consideration.

The rate cut is expected to provide some relief to consumers by reducing borrowing costs, though savers may see lower returns. Chancellor Rachel Reeves welcomed the BOE's decision, stating that it would help alleviate cost-of-living pressures.

Reeves commented on X (formerly Twitter) that the interest rate cut is the sixth since the July 2024 election, representing the most rapid series of cuts in 17 years. She added that it was "good news for families with mortgages and businesses with loans," while also stating that further action is needed to address the cost of living.

Looking ahead, economists predict that the central bank might implement another rate cut in early 2026, assuming macroeconomic data continues to support such a move. That said, the reality is a bit more complicated. these forecasts come with caveats.

Allan Monks, chief U.K. economist at JPMorgan, suggested that further easing appears probable beyond the December meeting. JPMorgan's current forecast anticipates two additional cuts in March and June, which would bring the base rate down to 3.25%. That said, the reality is a bit more complicated. Monks cautioned that high wage expectations for 2026 could present a challenge. While this is currently keeping the BOE cautious, a softening in this area could potentially lead the BOE to deviate from its gradual easing approach and open the door for another cut as early as February.