Bank of England Cuts Interest Rate to 3.75% Amid Cautious Economic Outlook
The Bank of England has cut its interest rate by 0.25 percentage points to 3.75%, down from 4.0%, a move that was widely anticipated by economists and investors. This reduction is expected to ease mortgage payments and the overall cost of living. Markets are currently pricing in one or two additional rate cuts next year.
The BoE projects that measures in Chancellor Rachel Reeves's upcoming budget, including energy-bill relief and a fuel-duty freeze, will reduce inflation by about 0.5 percentage points in the next year. Inflation could potentially reach the 2% target as early as next year, ahead of the previously expected 2027 timeline.
Despite these positive indications, economic growth is forecast to slow significantly, reaching zero in the fourth quarter of 2025. Internal concerns persist that the ongoing US-China trade war may divert cheap imports to Europe, which, while lowering prices, could hurt European manufacturers. There is also risk that wage-price pressures may re-emerge if inflation expectations remain anchored.
Overall, the Bank of England remains cautious as it considers whether the recent low inflation rates represent successful policy implementation or a broader economic slowdown. The inflation dynamics continue to be uncertain. This statement represents the BoE's final analysis and policy stance before the end of the year, delivering broadly positive news for households but with reasons for caution ahead.
