Bank of England set to cut rates to 3.75% as economic data eases inflation concerns

UK interest ratesAdd to myFTGet instant alerts for this topicManage your delivery channels hereRemove from myFTBank of England set to cut rates to 3.75% as economic data eases inflation concernsVote expected to pass by narrow majority and to hang heavily on the views of Bank governor Andrew BaileyThe central bank is expected to move closer to an end to the rate-cutting cycle that began in 2024 © Henry Nicholls/AFP via Getty ImagesBank of England set to cut rates to 3.75% as economic data eases inflation concerns on x (opens in a new window)Bank of England set to cut rates to 3.75% as economic data eases inflation concerns on facebook (opens in a new window)Bank of England set to cut rates to 3.75% as economic data eases inflation concerns on linkedin (opens in a new window)Bank of England set to cut rates to 3.75% as economic data eases inflation concerns on whatsapp (opens in a new window) Save Bank of England set to cut rates to 3.75% as economic data eases inflation concerns on x (opens in a new window)Bank of England set to cut rates to 3.75% as economic data eases inflation concerns on facebook (opens in a new window)Bank of England set to cut rates to 3.75% as economic data eases inflation concerns on linkedin (opens in a new window)Bank of England set to cut rates to 3.75% as economic data eases inflation concerns on whatsapp (opens in a new window) Save Sam Fleming in LondonPublishedDecember 15 2025Jump to comments sectionPrint this pageStay informed with free updatesSimply sign up to the UK interest rates myFT Digest -- delivered directly to your inbox.The Bank of England is poised to cut its benchmark interest rate by another quarter point to 3.75 per cent this week, as rising unemployment and the UK’s stagnating economy ease concerns about inflation. Financial markets widely expect the BoE’s Monetary Policy Committee to reduce interest rates from 4 per cent, bringing the central bank closer to an end in the rate-cutting cycle that began in 2024. Thursday’s announcement is set to show splits among the committee’s nine members, with the vote hanging heavily on the views of Andrew Bailey. When the MPC last met in November, the BoE governor signalled that he was open to lowering rates if economic data continued to point to declining inflation. On Friday, official GDP data showed that UK output shrank unexpectedly by 0.1 per cent in October, helping to subdue inflationary pressures in the economy. “The UK economy seems to need some support. The BoE is running out of reasons not to provide it,” said Bruna Skarica, economist at investment bank Morgan Stanley. The BoE held rates at 4 per cent in November, but the vote was finely balanced: four MPC members called for an immediate reduction while five backed no change. Bailey was part of the majority securing unchanged policy, but he opened the door to “further policy easing” at a later date if there were “durability in disinflation”. A cut to 3.75 per cent would take rates to their lowest since early 2023. Two crucial data releases — on the labour market and inflation — are due just ahead of this week’s meeting. Economists expect the Office for National Statistics to report a rise in unemployment to 5.1 per cent on Tuesday, from 5 per cent previously. Meanwhile analysts expect inflation to have dipped to 3.5 per cent in November from 3.6 per cent in October, according to a Reuters poll ahead of Wednesday’s figures. Clare Lombardelli, deputy governor for monetary policy at the Bank of England (BOE), is urging caution on future rate cuts © Jaimi Joy/BloombergEven if Bailey votes to lower rates, Clare Lombardelli, the Bank’s deputy governor, on Tuesday stressed “upside risks” to inflation as she urged caution on future cuts to the cost of borrowing, in a signal that she is less likely to shift in favour of a reduction. “Bailey’s view will be key,” said Philip Shaw, economist at Investec. “Our sense is that the governor will switch his vote to a quarter-point cut at the forthcoming meeting, resulting in another narrow majority, this time for a cut.”Chancellor Rachel Reeves’ Budget provided a modest amount of near-term support to UK activity, peaking at 0.2 per cent in 2027, Lombardelli told MPs last week, with tax rises set to bite only later in the current parliament. But BoE staff forecasts imply measures in the Budget aimed at lowering the cost of living will help the process of driving headline inflation down towards the official 2 per cent target next year. Some content could not load. Check your internet connection or browser settings.Lombardelli, who has specific responsibility for monetary policy in her role, told the House of Commons Treasury committee that Reeves’ policies would trim 0.4-0.5 percentage point from consumer price inflation for a year, starting in the second quarter of 2026.The BoE has consistently told markets to expect rates to follow a “gradual downward path”, but officials have more recently signalled that monetary policy could level out next year.Bailey said in November that market pricing implying two further cuts to leave the benchmark rate at 3.5 per cent was a “fair description” of his outlook. As such, the central bank may need to change its guidance in the minutes of this week’s meeting in order to acknowledge that the rate-reduction campaign that began in 2024 is closer to an end — at least for now. If the economy were to weaken further, the BoE might need to cut deeper, analysts stressed. GDP has grown in only one of the past seven months, with October’s decline leaving the economy no bigger than it was at the beginning of the second quarter of 2025. In the three-month period ending in October, the economy shrank by 0.1 per cent compared with the previous three months, Friday’s ONS data showed, the first such decline since the end of 2023.“Survey data suggests that the malaise has continued,” said Andrew Wishart, senior UK economist at Berenberg bank. “We suspect that deteriorating fundamentals rather than a Budget-related setback in confidence are to blame.”He added: “This should help ensure that inflation drops swiftly in 2026, allowing the Bank of England to cut bank rate from 4 per cent today to 3 per cent by next July.” Reuse this content (opens in new window) CommentsJump to comments sectionPromoted Content Follow the topics in this article UK economy Add to myFT UK inflation Add to myFT Central banks Add to myFT UK interest rates Add to myFT Bank of England Add to myFT Comments