Bank of England Set to Cut Rates, Easing Cycle Resumes

The Bank of England is widely expected to lower its Bank Rate by 25 basis points to 3.75 percent at its Monetary Policy Committee meeting today, a move markets view as the fourth cut of 2025. The shift follows a sharper than anticipated fall in consumer price inflation and fresh evidence of a cooling economy that together have reduced the pressure on policymakers to keep borrowing costs elevated.

Official data for November show U.K. consumer price inflation slowed to about 3.2 percent year on year, a marked deceleration from earlier in the year. At the same time labour market indicators point to softer conditions, with unemployment rising to its highest level since 2021 and private sector pay momentum easing. Those trends have lowered the risk that demand will sustain above target inflation, a central concern for the Bank through its recent tightening cycle.

Growth has also lost momentum. Third quarter 2025 GDP slowed, and market analysts expect a broadly stagnant economy to persist into 2026, reducing the case for further tightening. The decision follows a hold at the November MPC meeting, when policymakers cited uncertainty around the Chancellor’s Autumn Budget as a reason to pause. With that fiscal picture now clearer, rate cuts have resumed in the view of many investors.

Bank communications earlier this autumn underscored the trade offs facing the committee, noting that inflation "has come down a long way from its peak three years ago, but it remains too high." The Monetary Policy Report flagged that if inflation continues on its present path the Bank expects it will be able to "gradually cut rates further," language markets are parsing for conditionality around future easing.

Market pricing was heavily tilted toward a quarter point reduction, and analysts anticipated a narrowly split vote among the nine members of the committee, with a 5 to 4 division considered plausible and Governor Andrew Bailey potentially decisive. How the vote reads will be closely watched for an indication of the balance between members prioritising disinflation risks and those still wary of underlying price pressures.

Looking ahead, forecasts diverge on 2026. Some market participants project only a gradual path of easing because of persistent inflationary pressures in parts of the services sector, while more aggressive scenarios published by certain firms envisage Bank Rate falling to around 3.00 percent by mid 2026 if disinflation continues apace. The Bank itself has signalled caution, emphasising that any further cuts would be conditional and gradual.

Immediate market implications include potential relief in mortgage pricing and a modest depreciation of sterling, which could support growth but also complicate the inflation outlook through import prices. Politically, investors welcomed the prospect of easing as supportive for the government’s growth agenda.

Policymakers and markets will now focus on monthly CPI prints, labour market releases including pay data and unemployment, and incoming GDP reports to judge whether today’s cut initiates a sustained easing cycle or a brief response to temporary softening. The composition of the MPC vote could be the clearest guide to that path.