The Bank of England has cut interest rates by a quarter point to 3.75%, providing a pre-Christmas boost to the struggling UK economy. The decision, taken by a five-to-four vote on the Monetary Policy Committee, follows a steep fall in inflation and weak economic data.
Governor Andrew Bailey said rates were on a 'gradual path downward' but warned that future decisions would be 'closer calls'. The cut is the sixth since Labour came to power, with inflation falling to 3.2% in November from 3.6% in October, though still above the 2% target.
The four dissenters, including chief economist Clare Lombardelli, voted to hold rates, citing persistent inflation in services and strong wage growth. Lombardelli highlighted 'elevated wage growth' that could require slowing the pace of easing. In contrast, the majority judged that upside risks to inflation had receded.
Chancellor Rachel Reeves welcomed the cut, calling it the fastest pace of reductions in 17 years and good news for mortgage holders and businesses. The Bank noted that her November budget measures, including cuts to household energy bills, are expected to reduce inflation by about half a percentage point in early 2026.
Recent data showed GDP unexpectedly shrank by 0.1% in October, marking four months without growth. The Bank now expects GDP to be flat in the final quarter of 2025. Business groups blamed Reeves's £25bn increase in employer national insurance contributions for restraining the economy.
