{"id":356418,"date":"2025-12-18T16:40:08","date_gmt":"2025-12-18T16:40:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/356418\/"},"modified":"2025-12-18T16:40:08","modified_gmt":"2025-12-18T16:40:08","slug":"bank-of-england-cuts-interest-rates-to-3-75-in-pre-christmas-boost-for-struggling-economy-interest-rates","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/356418\/","title":{"rendered":"Bank of England cuts interest rates to 3.75% in pre-Christmas boost for struggling economy | Interest rates"},"content":{"rendered":"

The Bank of England<\/a> has cut interest rates by a quarter point, giving a pre-Christmas boost to the struggling UK economy, but a split vote among its rate-setters pointed to continued concerns about inflation.<\/p>\n

The Bank\u2019s nine-member monetary policy committee (MPC) opted by five votes to four to reduce its key base rate from 4% to 3.75%, signalling that it now expects inflation to be \u201ccloser\u201d to the 2% target in the first quarter of the new year.<\/p>\n

But minutes of the committee\u2019s meeting cast doubt on the pace of any further rate cuts, with the Bank\u2019s governor, Andrew Bailey, saying future decisions would be a \u201ccloser call\u201d. It is the sixth rate cut since Labour came to power last year.<\/p>\n

Bailey said: \u201cWe\u2019ve passed the recent peak in inflation and it has continued to fall, so we have cut interest rates for the sixth time, to 3.75% today. We still think rates are on a gradual path downward. But with every cut we make, how much further we go becomes a closer call.\u201d<\/p>\n

Thursday\u2019s cut was widely expected, after official data published on Wednesday showed that inflation fell last month to an annual rate of 3.2%<\/a>, from 3.6% in October, helped by weaker food prices. That remained well above the Bank\u2019s 2% target, set by the government, but suggested the Bank believed the worst of the inflation \u201chump\u201d had passed.<\/p>\n

Graph showing Bank of England interest rates since 2005<\/a><\/p>\n

The four MPC members voting to leave rates on hold highlighted the continued strength of inflation in the services sector, and survey data suggesting wage growth was likely to remain strong<\/a> in the coming months. They said this suggested that inflation had become entrenched, through \u201clasting changes in wage and price-setting behaviour\u201d.<\/p>\n

One of these hawks, the Bank\u2019s chief economist, Clare Lombardelli, highlighted \u201celevated wage growth\u201d, which she suggested could \u201crequire slowing the pace of future policy easing\u201d. The Bank\u2019s regional agents reported that employers were expecting pay growth of 3.5%, in 2026.<\/p>\n

Three of those backing the reduction \u2013 Bailey, Sarah Breeden and Dave Ramsden \u2013 said they \u201cjudged that upside risks to inflation had continued to recede\u201d, but would continue to monitor incoming evidence, especially on wage growth.<\/p>\n

However, the two external members supporting the cut, Swati Dhingra and Alan Taylor, fretted about the risks of an economic downturn, suggesting weak consumer spending and the slowdown in the labour market would restrain inflation.<\/p>\n

The latest rate cut will be welcomed by the chancellor, Rachel Reeves. She announced a series of inflation-fighting measures at her November budget that were partly aimed at increasing the Bank\u2019s room to manoeuvre to reduce rates.<\/p>\n

Reeves said: \u201cThis is the sixth interest rate cut since the election \u2013 that\u2019s the fastest pace of cuts in 17 years, good news for families with mortgages and businesses with loans. But I know there\u2019s more to do to help families with the cost of living.\u201d<\/p>\n

The MPC said the package, which included cuts to household energy bills, was expected to reduce inflation in the first quarter of 2026 by about half a percentage point.<\/p>\n

Labour hopes that lower borrowing costs will help underpin confidence and rekindle economic growth by making it cheaper for consumers and companies to borrow.<\/p>\n

Paul Nowak, the general secretary of the TUC, urged the Bank to continue reducing borrowing costs in 2026. \u201cThis rate cut is welcome \u2013 but one cut every now and again isn\u2019t enough for a fragile economy struggling with stagnant demand and failing confidence,\u201d he said. \u201cIt\u2019s vital this marks the start of a sequence of quickfire and substantial rate cuts.\u201d<\/p>\n

Recent data has pointed to a slowdown in the economy. An early estimate published last week<\/a> suggested GDP unexpectedly shrank by 0.1% in October, marking four successive months without growth. The MPC said Bank forecasters now expected GDP to be flat in the final three months of 2025, after a 0.1% expansion in the third quarter.<\/p>\n

Business groups have blamed Reeves\u2019s \u00a325bn increase in employer national insurance contributions (NICs), alongside the extended period of uncertainty before this year\u2019s budget, for putting the brakes on the economy. The Bank acknowledged that the NICs rise was among the \u201cone-off shocks\u201d that had \u201crestrained\u201d the downward trend in inflation in recent months.<\/p>\n

Independent forecasters, including the International Monetary Fund, have previously suggested UK consumers are likely to suffer the highest inflation rates among the G7 major economies this year and next.<\/p>\n","protected":false},"excerpt":{"rendered":"The Bank of England has cut interest rates by a quarter point, giving a pre-Christmas boost to the…\n","protected":false},"author":2,"featured_media":356419,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":{"0":"post-356418","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/356418","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=356418"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/356418\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/356419"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=356418"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=356418"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=356418"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}