Bank of England cuts interest rates to 3.75%

The Bank of England narrowly voted to cut interest rates on Thursday in its final monetary policy decision of 2025.

The central bank’s nine-member Monetary Policy Committee (MPC) voted 5-4 on Thursday to cut the benchmark interest rate by 25 basis points to 3.75%, marking the fourth rate cut this year.

Economists widely expected a rate cut, which comes amid lackluster economic data, a weakening labor market and a recent decline in inflation that has been faster than expected.

Nevertheless, the vote was close, with BOE Governor Andrew Bailey siding with more dovish committee members rather than the four policymakers who argued that November’s inflation rate was 3.2%, still a long way from the central bank’s 2% target.

The MPC said in a statement that while inflation remains above target, it is “expected to fall towards target faster in the short term.”

However, he cautioned that “the extent of further monetary policy easing will depend on developments in the inflation outlook.”

Based on current evidence, the MPC said, “The bank rate (BOE’s base interest rate) is likely to continue its moderate downward trend. However, decisions regarding further policy easing will likely be made with greater urgency.”

For now, lower interest rates will be welcomed by hard-pressed consumers because they make borrowing cheaper, but many consumers will lose out because their savings will earn less.

Finance Minister Rachel Reeves welcomed the central bank’s adjustments, saying they would ease pressure on the cost of living.

“Today’s rate cut is the sixth since the[July 2024]election and the fastest rate cut in 17 years, which is good news for families with mortgages and businesses with mortgages,” he said in comments to X, but added: “There is still work to be done on the cost of living.”

Economists say the next potential rate cut from the central bank could be in early 2026, if macroeconomic indicators provide more room and policy holds. However, there are caveats to these predictions.

“It is clear that further easing is likely to take place beyond the December meeting,” JPMorgan’s chief UK economist Alan Monks said in an analysis on Wednesday. JPMorgan’s current base case is for two more rate cuts in March and June, bringing the base rate down to 3.25%.

“One concern, however, is that wage expectations for 2026 are on the high side. That is making the BOE more cautious, but a softening of the situation could move the BOE away from a gradual easing path and open the door for further rate cuts in February,” he said.

Morgan Stanley’s chief UK economist Bruna Scalica and strategist Fabio Bassanin said in a note that they expect another rate cut in February on the back of falling inflation pressures and rising unemployment. But they expected that the next rate cut would send a “conservative message” about future rate cuts.

“Thereafter, we still think the BOE could implement two more rate cuts in April and June in the first half of 2026, based purely on the development of inflation and wage data, and unemployment rates that appear stubborn in our forecast.”