The Bank of England has cut interest rates from 4% to 3.75%, its sixth cut since last summer.
The decision follows a bigger-than-expected fall in the consumer price index rate of inflation in data released this week. While inflation is still above the Bank’s 2% target, the fall to 3.2% helped swing today’s decision, with five of the Bank’s nine-member monetary policy committee (MPC) voting for a cut.
The governor, Andrew Bailey, who had voted to leave rates on hold in November pending more data on inflation, shifted his vote this time around.
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“We’ve passed the recent peak in inflation and it has continued to fall,” he said, “so we have cut interest rates for the sixth time, to 3.75 per cent, today. We still think rates are on a gradual path downward. But with every cut we make, how much further we go becomes a closer call.”
The decision will mean those with floating rate mortgages should immediately see a reduction in their monthly repayments – and some lenders are now reducing fixed-rate deals to 3.5% or below.
The Bank also gave its first full assessment of the economic impact of last month’s budget. It said the budget, which included measures to reduce energy bills and freeze fuel duty, should help push inflation half a percentage point lower next year.
Were it not for the upcoming budget, interest rates could have been cut
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That would mean CPI inflation would drop to close to the Bank’s 2% target as soon as the second quarter of 2026, nearly a year earlier than it originally expected.
However, the Bank also warned that growth remained weak. It said it expected gross domestic product to flatline in the fourth quarter of the year.
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Since the decision was a narrow one, with four members of the MPC voting against the cut, some investors might judge that the Bank remains finely balanced on future decisions. Right now investors expect another cut by the end of next spring and, possibly, another one thereafter.
But whether rates eventually settle at 3.5% or 3.25% – or even lower – remains a matter of debate.
