Bank of England Cuts Bank Rate to 3.75% as Inflation Falls
The Bank of England (BoE) has cut its Bank Rate from 4.0% to 3.75%, marking the sixth rate cut since last summer. The decision was made following a close vote of 5-4 in favor of the reduction. This move comes as the Consumer Price Index (CPI) inflation rate falls to 3.2%, indicating that inflation has peaked and will continue to decline.
Governor Andrew Bailey, who shifted his stance from holding rates in November to supporting the cut in December, highlighted that CPI inflation is expected to approach the BoE's 2% target by the second quarter of 2026. This forecast is earlier than initially anticipated. The decline in inflation is also attributed to recent budget measures, including energy bill relief and a freeze on fuel duty, which are estimated to reduce inflation by about 0.5 percentage points next year.
Economic growth remains weak, with the Bank expecting GDP to remain flat in the fourth quarter of 2025. For consumers, those with floating-rate mortgages should see immediate reductions in their payments, and some lenders are offering fixed-rate deals around 3.5% or lower.
Market expectations suggest a further rate cut by the end of next spring, though there is debate about the path beyond that point, with possible rates of 3.5% or 3.25% or lower under consideration.
