BoE Cuts Interest Rate to 3.75% in December 2025 Amid Cautious Economic Outlook
The Bank of England (BoE) lowered its policy rate from 4.00% to 3.75% in December 2025, a move anticipated by economists and investors. This reduction offers relief to mortgage holders and households, with markets pricing in the possibility of one or two additional cuts next year.
The BoE expects inflation to decline by about 0.5 percentage points in 2026, driven by Treasury Secretary Reeves' measures including energy bill cuts and a freeze on fuel duty. These actions are projected to bring inflation closer to the 2% target, potentially by next year. Economic growth is forecast to reach zero in the fourth quarter of 2025.
However, risks remain. Inflation dynamics could be affected if consumer expectations continue to stay elevated and wage demands rise, sustaining inflationary pressures. Additionally, emerging Trump-style trade tensions might divert cheap imports to Europe, which could lower inflation but harm European manufacturers and signal a move away from deep globalisation.
This announcement represents the BoE's final analysis and policymaking for the year.
