Bank of England Expected to Cut Rates Again Amid Economic Challenges Facing Rachel Reeves
The City is anticipating a quarter-point cut in the Bank rate this Thursday, which would likely mark the sixth reduction since the general election and be perceived as a Christmas present for Chancellor Rachel Reeves.
Inflation pressures are easing, supported by disappointing October growth figures and forthcoming inflation and jobs data, all pointing towards a rate cut. Reeves's budget measures—such as energy bills relief, reductions in fuel duty, rail fares, and prescription charges—may justify deeper cuts. The Bank of England estimates these policies could reduce headline inflation by up to 0.5 percentage points by mid-2026.
However, the Monetary Policy Committee (MPC) remains divided, with Governor Andrew Bailey expected to cast the decisive vote. The base case scenario is for a quarter-point rate cut.
Unemployment has risen to its highest level since 2021, partly attributed to Reeves’s increase in employer National Insurance contributions. Bank analysis indicates the base rate, even after recent cuts, subtracts around 2 percentage points from GDP. Many borrowers have faced higher mortgage repayments since 2022.
Britain’s economy continues to face headwinds inherited from the Conservative era and ongoing tariff wars. The disinflation trend is expected to be largely driven by energy prices. Yet, some factors could push inflation higher again, including higher minimum wage growth, business rates, and other tax increases, while service-sector inflation remains sticky.
Looking ahead, by spring inflation may undershoot targets and wage growth could slow, potentially enabling further rate cuts, although the Bank's 2026 interest rate path remains uncertain.
