What's happened
The Bank of England reduced interest rates from 4% to 3.75%, citing falling inflation and economic slowdown. The move follows data showing CPI inflation dropped to 3.2% in November, the lowest since March, and signals a nearing end to rate cuts amid economic weakness and divided MPC opinions.
What's behind the headline?
The recent rate cut reflects a strategic shift by the Bank of England, signaling that inflation is now on a sustained downward trajectory. The division within the MPC highlights the tension between concerns over persistent wage and services inflation and the need to support economic growth. The fall in CPI inflation to 3.2% confirms that disinflation is gaining momentum, driven by lower food, tobacco, and clothing prices, as well as Black Friday discounts. However, the economic outlook remains fragile, with forecasts predicting zero growth in Q4 and rising unemployment. The Bank's cautious approach aims to balance inflation control with avoiding deeper economic contraction. The divergence among MPC members suggests that further rate cuts will depend heavily on upcoming data, especially wage growth and services inflation. Overall, the policy signals a nearing end to the easing cycle, but risks of inflation persistence and economic slowdown remain key considerations for future decisions.
What the papers say
The Independent reports that the Bank of England's MPC voted 5-4 to cut rates, citing falling inflation and economic slowdown, with CPI dropping to 3.2% in November. Sky News highlights the immediate relief for mortgage borrowers and the expectation of further cuts, with market pricing in additional reductions next year. The Guardian emphasizes the cautious tone of the MPC amid mixed signals of inflation and economic weakness, noting the division within the committee. The New York Times underscores the significance of inflation easing more than expected, boosting the case for rate cuts, while Politico discusses the broader economic context, including rising unemployment and the impact of fiscal measures. Overall, the coverage shows a consensus on the rate cut being justified by recent data, but with ongoing debates about the pace and extent of future easing.
How we got here
The Bank of England has been gradually lowering interest rates since 2024 as inflation started to recede from pandemic highs. Recent inflation data, including a sharp fall to 3.2% in November, alongside signs of economic slowdown and rising unemployment, have encouraged policymakers to continue easing monetary policy. The autumn Budget measures, aimed at reducing household bills, are expected to accelerate inflation decline, supporting the rate cut decision.
Go deeper
More on these topics
-
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based.
-
Rachel Jane Reeves is a British Labour Party politician serving as Shadow Chancellor of the Duchy of Lancaster and Shadow Minister for the Cabinet Office since 2020. She has been the Member of Parliament for Leeds West since 2010.
-
The Office for National Statistics is the executive office of the UK Statistics Authority, a non-ministerial department which reports directly to the UK Parliament.
-
Andrew Bailey may refer to:
Andrew Bailey (banker) (born 1959), British banker, Governor of the Bank of England
Andrew Bailey (baseball) (born 1984), American baseball pitcher and coach
Andrew Bailey (performance artist) (born 1947), British performance.
-
In economics, inflation is a general rise in the price level of an economy over a period of time.
When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power
-
AJ Bell is a public limited company that provides online investment platforms and stockbroker services. It is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index.
-
A consumer price index measures changes in the price level of a weighted average market basket of consumer goods and services purchased by households.