Bank of England Cuts Base Rate to 3.75% Following Inflation Drop
The Bank of England has cut its base interest rate from 4.0% to 3.75%, marking its sixth rate reduction since last summer. This decision follows a larger-than-expected fall in inflation, with the Consumer Prices Index (CPI) dropping to 3.2%, though still above the 2% target.
Five of the nine members of the Monetary Policy Committee (MPC) voted in favor of the rate cut, with Governor Andrew Bailey shifting from a hold position to supporting a cut. However, the decision was narrowly balanced, as four MPC members voted against the reduction.
Borrowers with floating-rate mortgages are expected to see immediate reductions in their monthly repayments. Additionally, some lenders have begun trimming fixed-rate mortgage deals to 3.5% or below.
The Bank of England assesses that recent budget measures aimed at reducing energy bills and freezing fuel duty should lower inflation by about 0.5 percentage points next year. Without these budget interventions, inflation might approach the 2% target around the second quarter of 2026.
Despite these measures, economic growth remains weak, with the Bank expecting GDP to flatline in the fourth quarter. Markets anticipate further rate cuts by next spring, although the eventual terminal rate—whether it will be 3.5%, 3.25%, or lower—remains a topic of debate within the MPC.
