City anticipates Bank of England rate cut amidst weak growth and inflation easing
The City expects the Bank of England (BoE) to announce a 25 basis point rate cut on Thursday, potentially the sixth since the general election. This move is framed as an early Christmas present for Chancellor Rachel Reeves.
The anticipated rate cut follows weak economic growth in October and expectations that inflation pressures will fade, supported by upcoming inflation and jobs data. Reeves's increase in employer national insurance contributions is linked to unemployment reaching its highest level since 2021.
Since 2022, BoE policy has involved maintaining high interest rates; even following expected cuts, the base rate is projected to subtract around 2% from GDP and sustain high mortgage payments.
BoE Governor Andrew Bailey is expected to cast the deciding vote, indicating that inflation is likely to fall, which would ease the path to a quarter-point cut.
Looking ahead to 2026, the economic outlook is uncertain with continued policy divisions. Budget measures introduced by Reeves could reduce headline inflation by up to 0.5 percentage points by mid-2026. However, risks to disinflation remain, including the possibility that energy-related relief may not last and persistent inflation in the service sector. Higher wages and increased business taxes could also contribute to pushing costs upward.
