The Bank of England (BOE) in the City of London, UK, on Monday December 15, 2025.
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The Bank of England narrowly voted on Thursday to cut interest rates, its final monetary policy move in 2025.
The central bank’s nine-member Monetary Policy Committee (MPC) voted 5-4 on Thursday to cut the key interest rate by 25 basis points to 3.75%, marking the fourth cut of the year.
Economists had widely expected the rate cut, which comes at a time of weak economic data, a slowdown in the labor market and a recent decline in inflation that exceeded expectations.
Nonetheless, the vote was close, with BOE Governor Andrew Bailey siding with the committee’s more moderate members rather than the four policymakers who maintain that inflation, at 3.2% in November, is still far from the central bank’s 2% target.
In a statement, the MPC said that while inflation remained above target, “it is now expected to return to target more quickly in the near term.”
However, it was noted that “the extent of further monetary easing will depend on the evolution of the inflation outlook.”
Based on current findings, the MPC declared the “bank rate”. [the BOE’s benchmark interest rate] The gradual downward trend is likely to continue. But judgments about further policy easing will become more important.”
sterling remained unchanged against the dollar following the announcement, as did the FTSE 100. The yield on the benchmark 10-year U.K. government bond rose 3 basis points to 4.510%.
For now, the interest rate cuts are being welcomed by hard-pressed consumers as they make it cheaper to borrow, but many are losing out due to the reduced return on their savings.
Chancellor Rachel Reeves welcomed the central bank’s austerity policy, saying it would ease pressure on the cost of living.
“Today’s rate cut is the sixth since the election [in July 2024]the fastest pace of cuts in 17 years and good news for families with mortgages and businesses with credit,” she said in comments to X, adding that “there is more work to be done on the cost of living.”
Outlook for 2026
Economists expect the central bank could make the next rate cut in early 2026 if macroeconomic data continues to allow for more room or maneuver. The Bank of England (BoE) said on Thursday it expects the economy will not post growth in the fourth quarter of 2025.
However, there are caveats to the number of cuts we were able to see.
“We will see cuts, but perhaps not many more,” Jack Meaning, chief U.K. economist at Barclays, told CNBC on Thursday after the release.
“[After] With growth and inflation slowing, they have to acknowledge that more cuts are likely to come, but they are keeping all options open,” he told CNBC’s “Decision Time.”
“Further easing seems likely beyond the December meeting,” Allan Monks, chief U.K. economist at JPMorgan, said in an analysis on Wednesday. JP Morgan’s current base case calls for two further cuts in March and June, which would bring the key rate down to 3.25%.
“One downside, however, is the high wage expectations for 2026. That keeps the BOE cautious, but if the picture there were to weaken, that could take the BOE off its gradual easing path and open the window for another cut in February.” he said.
Bank of England Governor Andrew Bailey attends the central bank’s press conference on the Bank of England’s monetary policy report in London on May 9, 2024.
Yui Mok | Afp | Getty Images
Bruna Skarica, chief U.K. economist at Morgan Stanley, and Fabio Bassanin, U.K. strategist, said in a note that they expect another cut in February due to a decline in inflation pressures and a rise in the unemployment rate. However, they expected a “conservative message” on future rate cuts when the next rate cut comes.
“After that, based solely on the evolution of inflation and wage data, as well as what appears to be a stubborn unemployment rate in our forecasts, we still expect the BOE to be able to implement two more rate cuts in the first half of 2026, in April and June.”
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