What's happened
The Bank of England reduced interest rates from 4% to 3.75%, citing a decline in inflation and signs of economic slowdown. The move, supported by a narrow majority, aims to support borrowers and reflects easing inflation pressures, with further cuts expected next year amid weak growth and rising unemployment.
What's behind the headline?
The Bank’s rate cut reflects a cautious shift towards easing monetary policy amid clear signs of economic slowdown and falling inflation. The narrow vote (5-4) indicates division within the MPC, with some members concerned about persistent wage and services sector inflation. The recent inflation data, notably the drop to 3.2%, supports the case for further cuts, which markets anticipate could total two more in 2026. However, the divergence within the MPC highlights ongoing risks: some members worry that high wage growth and inflation expectations could reignite price pressures, especially if government policies add to wage costs. The Bank’s forecast that inflation will reach near 2% by mid-2026 hinges on continued weak growth and the impact of fiscal measures. The decision underscores the balancing act between supporting borrowers and preventing inflation from becoming entrenched, with the next moves likely to depend on incoming data on wages, services inflation, and economic activity. Overall, the rate cut signals a shift towards a more accommodative stance, but the division suggests future policy will remain data-dependent and cautious.
What the papers say
The Independent reports that the Bank of England’s MPC voted narrowly in favor of a rate cut, citing recent inflation data and economic slowdown as key factors. Sky News highlights the market’s expectation of further cuts and the positive impact on mortgage borrowers, emphasizing the fall in inflation to 3.2% and the government’s fiscal measures. The Guardian notes the division within the MPC and the cautious outlook, with some members concerned about wage and services inflation. Politico discusses the broader economic context, including rising unemployment and weak growth, which support the Bank’s easing stance. All sources agree that recent inflation data and economic signals are driving the Bank’s decision, though some highlight internal disagreements and risks of inflation persistence.
How we got here
The Bank of England has been gradually lowering interest rates since 2024 as inflation started to ebb following pandemic-related spikes. Recent inflation data, including a sharp fall in CPI to 3.2% in November, alongside weak economic growth and rising unemployment, prompted the latest rate cut. The government’s recent budget measures, including energy bill relief and tax adjustments, are expected to accelerate inflation decline, influencing the Bank’s policy stance.
Go deeper
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