Closing post
Time to wrap up….
The Bank of England has cut interest rates by a quarter point, giving a pre-Christmas boost to the struggling UK economy, but a split vote among its rate-setters pointed to continued concerns about inflation.
The Bank’s nine-member monetary policy committee (MPC) opted by five votes to four to reduce its key base rate from 4% to 3.75%, signalling that it now expects inflation to be “closer” to the 2% target in the first quarter of the new year.
But minutes of the committee’s meeting cast doubt on the pace of any further rate cuts, with the Bank’s governor, Andrew Bailey, saying future decisions would be a “closer call”. It is the sixth rate cut since Labour came to power last year.
Bailey said:
“We’ve passed the recent peak in inflation and it has continued to fall, so we have cut interest rates for the sixth time, to 3.75% today. We still think rates are on a gradual path downward. But with every cut we make, how much further we go becomes a closer call.”
Thursday’s cut was widely expected, after official data published on Wednesday showed that inflation fell last month to an annual rate of 3.2%, from 3.6% in October, helped by weaker food prices. That remained well above the Bank’s 2% target, set by the government, but suggested the Bank believed the worst of the inflation “hump” had passed.
Several City economists predicted the Bank will cut interest rates twice in 2026, bringing base rate down to 3.25%.
Our senior economics correspondent, Richard Partington, suspects the end of the Bank of England’s interest rate-cutting cycle may be approaching.
He writes:
The hope in Downing Street will be that whacking inflation down in 2026 could help prevent the headline rate sticking at elevated levels. Most economists anticipate at least another cut in interest rates next year as a result.
Weaker growth, rising unemployment, and evidence of a further inflation slowdowncould put more on the table. But the endpoint is getting closer.
“We expect Bank Rate will end 2026 at 3.25%,” said Oxford Economics’s chief UK economist Andrew Goodwin, joining the ranks of those forecasting two UK interest rate cuts in 2026.
“The MPC emphasised that while further cuts are likely, they will continue to adopt a cautious approach
“Though risks that inflation stays persistently high have receded in recent months, most of the committee are worried about the strength of expectations for 2026 pay awards.”
Updated
Stocks have opened higher in New York, as today’s drop in inflation across America raises hopes of cuts to US interest rates.
DOW JONES UP 331.79 POINTS, OR 0.69 PERCENT, AT 48,217.76 AFTER MARKET OPEN
— FinSquawk (@finsquawk_) December 18, 2025
S&P 500 UP 65.75 POINTS, OR 0.98 PERCENT, AT 6,787.18 AFTER MARKET OPEN
NASDAQ UP 326.09 POINTS, OR 1.44 PERCENT, AT 23,019.41 AFTER MARKET OPEN
Ruth Gregory, deputy chief UK economist at Capital Economics, predicts that UK interest rate will fall to 3% next year, implying three quarter-point cuts.
Gregory says:
The Bank of England struck a slightly hawkish tone while cutting interest rates from 4.00% to 3.75% today. But with inflation set to fall further than the Bank expects, we still think a rate cut in February is possible and that rates will fall to 3.00% in 2026 rather than to the low of 3.50% currently priced into the market.
Investec economist Sandra Horsfield also expects two more UK interest rate cuts next year, saying:
We continue to see scope for further rate reductions going forward.
If current wage growth is around 3%, as Bank staff estimated recent median pay settlements to have been, it is hard to envisage wage growth firming from here in 2026. But we also have a great deal of sympathy for caution when approaching neutral rates, an approach the MPC will want to maintain.
So unless activity takes a sudden steep turn for the worse, we doubt the MPC will want to accelerate the pace of rate cuts from here. By end-2026, we expect to see a Bank rate of 3.25%.
Getting back to the Bank of England…
John Wyn-Evans, head of market analysis at wealth managers Rathbones, has warned that today’s rate cut will be “insufficient” to boost the economy substantially.
Wyn-Evans explains:
Confidence remains low and the recent Budget failed to introduce measures that could be considered friendly to growth while increasing taxes by £26bn. The domestic political outlook remains uncertain heading into 2026, with May’s local elections providing the next big test for the Prime Minister.
“Market reaction was relatively subdued, although a slight rise in the value of the pound reflected the fact that the overall tone of comments implied that the base rate will not be cut again any sooner than previously expected.
Wall Street is expected to open higher, as today’s drop in US inflation raises hopes of cuts to American interest rates.
The futures market shows the S&P 500 share index is on track to open 0.8% higher, while the tech-focused NASDAQ 100 is seen 1.4% higher.
Richard Carter, head of fixed interest research at Quilter Cheviot, says:
“As we move into 2026, all eyes will be on the dynamics of the FOMC – particularly with Trump piling on the pressure for more cuts. With the president determined to appoint a chair who follows his lead on pushing for lower interest rates, markets will be on high alert for any erosion of Fed independence.”
US inflation falls unexpectedly
Newsflash: the annual rate of inflation in the US has slowed unexpectedly.
The US consumer prices index rose by 2.7% in the year to November, down from 3.0% in the year to September. That’s lower than forecasts – economists had expected it would rise to 3.1% – and an encouraging sign for American families struggling with the cost of living crisis.
On a monthly basis, prices rose by 0.2 percentage points in the two months from September 2025 to November 2025, the U.S. Bureau of Labor Statistics reports (October’s inflation report having been lost to the US government shutdown).
Core inflation, which stripped out food and energy prices, rose 2.6% over the last 12 months.
Updated
Eurozone interest rates unchanged
Another central bank has grabbed the spotlight; the European Central Bank has left interest rates across the eurozone on hold.
The ECB has decided to keep its key interest rates unchanged, saying “We did this because inflation is on track to settle around our 2% target.”
The ECB has also revised up its forecasts for eurozone economic growth, saying:
Economic growth is expected to be stronger than in the September projections, driven especially by domestic demand. Growth has been revised up to 1.4% in 2025, 1.2% in 2026 and 1.4% in 2027 and is expected to remain at 1.4% in 2028.
City economists predict two rate cuts in 2026
Some economists are predicting that the Bank of England will lower interest rates in 2026, despite its warning today that “judgements around further policy easing will become a closer call.”
Simon Dangoor, deputy chief investment officer (CIO) of fixed income at Goldman Sachs Asset Management, predicts inflation won’t misbehave in 2026:
‘Weak data could give the BoE scope to cut rates more than markets currently anticipate next year. The labour market continues to show signs of deterioration, and we expect inflation to remain well-behaved through 2026.
If evidence continues to build confirming these trends, the MPC may adopt a more dovish stance.’
ING predict two cuts in the first half of 2026, which would lower Bank rate to 3.25%.
James Smith, ING’s UK economist, explains
Fundamentally, the Bank – or most officials at least – still think further cuts are likely. It has not changed our mind that the Bank will cut rates twice more next year.
The timing is admittedly uncertain. We narrowly expect another cut in February, but it’s a close call. There’s only one more round of inflation and wage/jobs data before then, suggesting the views of the committee won’t shift enormously over the next eight weeks.
If it’s not February, then we think it’ll be March. Fundamentally, the UK should look like much less of an inflation outlier next year. Headline CPI should be very close to 2% by May – maybe even below. That’s why we expect another cut in the second quarter, leaving the Bank Rate at 3.25% thereafter.
Sanjay Raja, chief uk economist at Deutsche Bank, predicts that the policy divisions that have split the Bank this year will narrow over 2026.
Raja also expects two cuts in 2026, telling clients:
Big picture, Bank Rate remains on a downward trajectory. We expected three things heading into the Bank’s final meeting of the year: one, a quarter-point rate cut, two, a 5-4 vote spit, and three, the MPC raising the bar for further rate cuts. Today, we got all three. Importantly, we expect the precipitous drop in CPI next year alongside a deteriorating labour market to keep quarterly rate cuts in play next year.
We stick to our long-standing call of two more rate cuts in 2026: one in March, and one in June, taking Bank Rate to 3.25%. Risks are skewed to a slower but deeper easing cycle.
Five doves a-cutting - here's why
The five MPC members who voted to cut interest rates today are all confident that the UK’s ‘disinflation process’ is on track.
The four doves, who were joined by governor Andrew Bailey today. have explained why they cut rates.
In a statement released with the minutes, Alan Taylor, an external member of the MPC, predicts that inflation could hit target earlier than forecast last month.
And with redundancies on the rise and unemployment climbing, Taylor believes that the “neutral” level of interest rates is 3%.
Taylor adds:
Given transmission lags, and with inflation expected near target by late 2026, we should be heading there sooner rather than later.
But…. Bailey argues that Bank Rate is approaching a neutral level.
The governor writes:
Data news since our latest meeting suggests that disinflation is now more established. CPI inflation has fallen from its recent peak and upside risks have eased. Measures in the Budget should reduce inflation further in the near term. The key question for me now is the extent to which inflation settles at the 2% target in an enduring way. Slack has continued to accumulate in the economy. Unemployment, underemployment and flows from employment to unemployment have all risen. While I do not yet see conclusive evidence of a sharper downturn in the labour market, we should be vigilant.
Fellow MPC members Sarah Breeden and Dave Ramsden said that that disinflation is “on track”, while Swati Dhingra warns that risks to activity are “skewed to the downside”.
Updated
Reeves: 6th rate cut since the election
Chancellor Rachel Reeves says today’s interest rate cut is ‘good news’ for borrowers, and point out this is the sixth cut since Labour won the July 2024 election.
She says:
Today’s interest rate cut is the sixth since the election, the fastest pace of cuts in 17 years and good news for families with mortgages and businesses with loans.
There’s more to do on the cost of living, that’s why we’re cutting £150 off energy bills and freezing rail fares.
Today's interest rate cut is the sixth since the election, the fastest pace of cuts in 17 years and good news for families with mortgages and businesses with loans.
— Rachel Reeves (@RachelReevesMP) December 18, 2025
There's more to do on the cost of living, that's why we're cutting £150 off energy bills and freezing rail fares.
Interest rate cuts have brought some cheer amid the economic gloom of Labour’s first year in power.
But as my colleague Richard Partington pointed out last weekend, Reeves’s policies have been a factor weakening the economy, meaning interest rates cuts were needed:
That Britain’s economy is in the doldrums should hardly come as a surprise. Continual tax speculation has sapped business confidence and household spending, while Reeves’s increase in employer national insurance contributions has played a part in UK unemployment hitting the highest levels since 2021, during the height of the Covid pandemic.
Celebrating a rate cut, in this context, is akin to an arsonist cheering the arrival of the fire brigade.
It’s also slightly jarring to see the chancellor celebrate “the fastest pace of cuts in 17 years”; that takes us back to the panic after the financial crisis of 2008, when central banks raced to ease monetary policy.
Bank: further rate cuts will become "a closer call"
Today’s rate cut is the sixth since August 2024, a sequence that has brought Bank Rate down from 5.25% to 3.75% today.
But… the Bank of England is warning today that while it expects to keep cutting rates, such judgements will become “a closer call”.
It says:
The extent of further easing in monetary policy will depend on the evolution of the outlook for inflation. The restrictiveness of policy has fallen as Bank Rate has been reduced by 150 basis points since August 2024.
On the basis of the current evidence, Bank Rate is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call.
Bank: budget will lower inflation, then push it up
The Bank predicts that Rachel Reeves’s budget will lower CPI inflation next April by around half a percentage point (a forecast it first made earlier this month).
But this happy effect is expected to slightly unravel in the following two years.
The Bank says:
Subsequently, the impact of the direct and indirect effects of Budget policies were expected to push up on CPI inflation by around 0.1–0.2 percentage points in 2027 and 2028.
Bank: inflation expected to fall 'more quickly in the near term'
The minutes of the Bank’s meeting point out that CPI inflation has fallen since the previous gathering in November, to 3.2%.
It says:
Although above the 2% target, it is now expected to fall back towards target more quickly in the near term.
The Bank predicts that inflation will rise temporarily this month (due to an increase in tobacco duty and a pickup in airfares price inflation), but it is then expected to fall to around 3% in the first quarter of 2026.
Governor Bailey switches vote in 5-4 split
This is the second month running in which the Bank has been split 5-4 on its interest rate decision.
But the big change is that governor Andrew Bailey switched his vote from holding rates, to cutting them.
That tipped the balance the other way, into lowering borrowing costs today.
The minutes of this month’s meeting explain:
Five members (Andrew Bailey, Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor) preferred to reduce Bank Rate by 0.25 percentage points at this meeting. The disinflation process was on track and the key question was how sustainably inflation would settle at the 2% target. Three members in this group (Andrew Bailey, Sarah Breeden and Dave Ramsden) judged that upside risks to inflation had continued to recede, but they would continue to assess incoming evidence, particularly around labour market activity and wage growth. Two members in this group (Swati Dhingra and Alan Taylor) attached greater weight to downside risks to activity and inflation. Subdued consumption and rising unemployment were already sufficient to restrain inflation persistence.
Four members (Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill) preferred to maintain Bank Rate at this meeting, placing greater weight on prolonged inflation persistence, including from structural factors. While acknowledging recent progress on disinflation, the current and forward-looking evidence on services inflation, wage growth and inflation expectations remained above target-consistent levels. This could be symptomatic of more lasting changes in wage and price-setting behaviour. These members were not convinced that the monetary policy stance was meaningfully restrictive. A more prolonged period of policy restriction was warranted to mitigate these upside risks.
BANK OF ENGLAND CUTS INTEREST RATES
Newsflash: The Bank of England has cut UK interest rates to their lowest level in almost three years, in an attempt to stimulate the economy.
Faced with a weakening jobs market, and falling inflation, the BoE has lowered Bank Rate from 4% to 3.75%, in line with City forecasts.
The Bank’s monetary policy committee split 5-4 to lower rates, with governor Andrew Bailey switching to the cutters having voted to leave rates on hold in November.
The Bank says:
At its meeting ending on 17 December 2025, the Monetary Policy Committee voted by a majority of 5–4 to reduce Bank Rate by 0.25 percentage points, to 3.75%. Four members voted to maintain Bank Rate at 4%.
The cut comes in a week in which the UK unemployment rate hit its highest in almost five years, while inflation fell to an eight-month low.
Bank of England decision in 15 minutes....
Tension is building in the City, with the Bank of England expected to make its final interest rate decision of the year at noon.
Economists are confident rates will be cut after inflation fell to an eight-month low in November.
A quarter-point cut, from 4% to 3.75%, would borrowing costs down to the lowest rate since the beginning of February 2023….
Trump Media & Technology to merge with fusion power company (!)
Newsflash: The Trump family media company is merging with a fusion power company.
Trump Media & Technology and TAE Technologies have agreed to combine in an all-stock transaction valued at more than $6 billion, the companies have just announced.
The deal will create one of the world’s first publicly traded fusion companies, and help TAE bring its nuclear fusion technology to market.
Dr Michl Binderbauer, TAE CEO and director, says:
“Our talented team, through its commitment and dedication to science, is poised to solve the immense global challenge of energy scarcity. At TAE, recent breakthroughs have prepared us to accelerate capital deployment to commercialize our fusion technology.
We’re excited to identify our first site and begin deploying this revolutionary technology that we expect to fundamentally transform America’s energy supply.”
Updated
With an interest rates cut today widely expected, borrowers will be curious to know how borrowing costs might change in 2026.
The City’s money markets predict at least one quarter-point cut next year (assuming we get one today).
Professor Costas Milas, of the University of Liverpool’s Management School, predicts Bank Rate will be cut to 3.75% today and remains at 3.75% in the first quarter of 2026.
He explains:
These forecasts are based on the most recent version of my interest rate reaction function, with Bank Rate depending on (i) the OBR measure of the output gap, (ii) a weighted average of inflation one-year ahead (which I predict to be 2.5 per cent both for 2026Q4 and 2027Q1) and current inflation, and (iii) economic policy uncertainty in the UK dropping (as the Budget uncertainty disappears) by 20 per cent between today and 2026Q1.
Whitbread shares jump as activist investor moves in
Back in the City, shares in hotel group Whitbread have jumped by 5.5% after an activist investor took a stake in the company.
Corvex Management has concluded that Whitbread, which owns the Premier Inns chain, is undervalued, and should review its current five-year capital plan.
Corvex, which has accumulated an economic interest in Whitbread worth just over 6% of its share capital, is urging the company to must evaluate all available strategic options and maximise value for all shareholders.
It says:
“Corvex invested in Whitbread because we believe the current market price reflects not only a discount to the Company’s fundamental value, but a discount to the value of the Company’s fully owned and operated UK freehold hotel portfolio alone. In our view, the current share price appears to ascribe no value to several meaningful components of the Company’s business, including its UK operated leasehold portfolio, its German hotel assets, and its development properties currently under construction and not yet trading.
“In light of this valuation disconnect, and following the recently announced UK Budget and changes to rateable values and business rates, we believe the Company should undertake a strategic review to assess its capital allocation priorities and overall strategic direction.”
Currys boss: reasons to be concerned about UK consumers
Currys boss Alex Baldock said there were “reasons to be concerned for the UK consumer outlook” as tax increases in the budget were weighing on sentiment.
After revealing a healthy 6% rise in sales in the UK and Ireland in the six months to 1
November (see earlier post), Baldock said the electrical goods retailer had outperformed
a technology market where sales sank just over 1% amid a “muted consumer environment”.
“We are not counting on any improvement in UK consumer outlook, confidence or spending looking forward,” he said. However, he added that Currys expected to take market share as it increased its ranges in sectors which were expanding such as gaming, coffee machines and AI computing.
Baldock would not comment on how the important Black Friday sales period went – amid rumours of a more muted than hoped for sales period for the retail sector. However, he said that changes to personal taxation announced by the Chancellor last month meant “consumers’ already high tax burden increased further.”
Baldock said Currys’ profits had been “resilient” – dropping £4m to £19m – in the half but against big increases in costs prompted by the 2024 budget including employers’ national insurance and minimum wage increases.
He said this year’s budget had been “less damaging” with business rates changes “marginally helpful” for Currys. But he warned that new workers rights under the Employment Rights Bill which has just been approved by parliament could “threaten the viability of part time flexible and entry level jobs” and cause big employers such as Currys to cut back on hiring next year.
Rates on hold in Norway too
Newsflash: Interest rates in Norway have been left on hold.
The Norges Bank’s Monetary and Financial Stability Committee has left Norway’s policy rate unchanged at 4%.
They warn that the outlook is uncertain, but have hinted that rates could be reduced further in the year ahgead.
Norges Bank governor Ida Wolden Bache says:
“We are not in a hurry to reduce the policy rate. The interest rate outlook is little changed since the September Report. In our projections, the average residential mortgage rate declines to just above 4.5 percent in 2028. As such, we do not envisage a large reduction in the policy rate ahead.”
Sweden and Taiwan leave interest rates on hold
Newsflash: Two central banks have just left interest rates on hold.
Sweden’s Riksbank has left its policy rate unchanged at 1.75%, and guided that “the rate is expected to remain at this level for some time to come”.
The Riksbank says:
The prospects for the Swedish economy are looking brighter. Although it will take time before economic activity returns to normal, the recovery is under way. At the same time, inflation has approached 2 per cent.
It warns, though, that the outlook for inflation and economic activity in Sweden is uncertain with risks at home and abroad.
The Riksbank explains:
The risk picture abroad is still marked by geopolitical conflicts, uncertainty regarding US foreign and trade policy, high asset valuations in financial markets and weak public finances in several countries.
In Sweden, there is also uncertainty around households’ consumption behaviour and the effects that next year’s more expansionary fiscal policy will have.
Taiwan’s central bank has taken the same decision, leaving its benchmark interest rate unchanged at 2％
BP shares swing after CEO change
Shares in BP are a little volatile this morning after the surprise departure of the oil major’s chief executive, Murray Auchincloss, last night.
BP was among the top risers on the FTSE 100 share index in early trading, with its shares up 1%.
But they have quickly reversed, and are now down 0.6%.
Auchincloss’s successor is Meg O’Neill, the head of the Australian oil company Woodside Energy. She’s expected to push on with BP’s drive to cut costs and reduce debt through asset sales, as it reverses away from its strategy to become a green energy giant.
The change at the top at BP could renew speculation that the company could become a takeover target.
Derren Nathan, head of equity research at Hargreaves Lansdown, says:
“In a world of J R Ewing style oil barons, BP has appointed Meg O’Neill as the first external candidate to take BP’s top job. She’s also the first woman to run an oil major. But the Colorado native is already an oil veteran. After 23 years at ExxonMobil, she joined Australia’s Woodside Energy in 2018, where she’s been CEO since 2021. One of her key milestones was the acquisition of BHP Petroleum, giving Woodside full ownership of the Scarborough Gas field and the Northwest Shelf LNG project.
With the sector facing pressure, consolidation is the talk of the town, but BP is most frequently seen as prey rather than the hunter. Rival Shell has distanced itself from takeover speculation, but there are other potential suitors. O’Neill may have a fight on her hands to ensure BP’s not sold for a song, and to keep a seat at the table if it were to join forces with a competitor.
Murray Auchincloss’s future has been in the balance ever since activist investor Elliott Investment Management took over a 5% stake in BP. Chairman Helge Lund went earlier in the year, and the legacy clear-out is now complete. Investors will now be hoping O’Neill has a firm plan to shore up the balance sheet, improve profitability and define BP’s role in the energy transition.”
Updated
Over in Beijing, China’s commerce minister has criticised the European Union’s investigations into whether Chinese companies are unfairly subsidised by the state.
The ministry said the EU’s Foreign Subsidies Regulation investigations severely impacted Chinese firms’ investment and business operations in the bloc, and China strongly opposes them.
China hopes the EU will immediately cease its “unreasonable suppression” of foreign companies, including those from China, He Yadong, a spokesperson for the ministry, said at a regular press briefing.
Currys grows profits by 144% despite 'unhelpful' cost headwinds
UK electricals retailer Currys has more than doubled its profits in the first half of the year, despite rising costs in the UK.
Currys, which sells computers and gaming products, and white goods such as televisions, fridges, washing machines and tumble driers, reported a 144% rise in adjusted pre-tax profits to £22m.
Group revenue rose 8% to £4.23bn in the six months to 1 November 2025, with like-for-like revenue up 4% in both the UK and Ireland division and the Nordics.
Alex Baldock, chief executive of Currys, says the company had healthy growth in sales, profits and cash flow.
In the Nordics, being the clear leader in an improving market, combined with strong execution, has driven another notable step forward in profits. It’s pleasing that strong top-line growth is translating into improved profitability.
In the UK&I, the consumer environment is more muted, and cost headwinds are unhelpful. Still, we’re the growing market leader, gaining share, and our margin and cost discipline is going a long way to mitigate headwinds and protect profits. In all markets, our big growth initiatives are paying off, our omnichannel model continues to win, and our growing services and solutions are great for customers and valuable to us.
Yesterday’s larger-than-expected drop in UK inflation, from 3.6% to 3.2%, made an interest rate cut at noon today even more likely.
Danni Hewson, head of financial analysis for AJ Bell, explained:
“Although 3.2% is still way above the Bank of England’s target, it is expected to be the final piece in the puzzle which will enable rate setters to deliver their own festive gift to borrowers with an interest rate cut on Thursday.
There are still massive question marks about what 2026 will bring and markets don’t expect the Bank of England to cut interest rates more than once or twice over the next year, so borrowers hoping to see a return to the ultra-low levels many people had become used to will have to adapt.”
ING: Bank of England deeply divided, but rate cut expected
Today’s decision isn’t expected to be unanimous; indeed, it could be another 5-4 vote.
That’s because the Bank’s monetary policy committee consists of four dovish committee members who worry about the weaker jobs market and slowing wage growth, and four hawks concerned about supply-side constraints in the economy and inflation persistence, plus likely swing voter Andrew Bailey.
But unlike in November, when five policymakers wanted to hold interest rates and only four favoured a cut, those numbers could flip at noon today.
Bailey is most likely to shift from the hawks to the doves, economists believe.
James Smith, ING’s UK economist, explains:
Stuck in the middle of it all is Governor Andrew Bailey. He sits between those two camps and almost certainly holds the deciding vote this week. Crucially, though, he wrote in the November meeting minutes that he has more sympathy with the doves.
It sounded like he was edging towards voting for a cut last month, but wanted more evidence that inflation was coming down. On the basis that inflation has largely come in line with the Bank’s forecasts since then, and if anything a tad below, we suspect he will favour a cut this week. That sets up a 5-4 vote in favour of lowering rates to 3.75%.
Introduction: Bank of England expected to cut interest rates today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The wise men and women at the Bank of England could bring gifts for borrowers today, in an attempt to stave off a UK economic downturn.
The BoE is widely, and confidently, expected to cut UK interest rates at noon, from 4% to 3.75%. That would take borrowing costs down to their lowest level since January 2023.
The money markets indicate there is a 97.5% chance of a quarter-point rate cut, and only a 2.5% possibility that rates are left at 4%.
Wednesday’s drop in inflation, to 3.2%, suggests the cost of living squeeze is easing, which could reassure BoE policymakers that the consumer prices index is heading back towards its 2% target.
More worryingly, Tuesday’s rise in unemployment to a new five-year high suggests the UK needs easier monetary policy, especially as wage growth slowed too.
With the economy shrinking in October, investors are confident that at least five of the Bank’s nine policymakers will plump for a rate cut.
Sanjay Raja, Deutche Bank’s chief UK economist, says:
With disinflation progress on track, the labour market showing added signs of loosening, and GDP growth missing expectations, a Christmas rate cut looks all but certain.
More rate cuts will likely follow in 2026. But much will depend on forward looking indicators of price pressures – including firms’ CPI expectations, price expectations, and wage expectations – and the evolution of the labour market.
Lingering weakness in the quantities side of the labour market could elicit a more dovish reaction function in 2026.
In a busy day for central bankers, we’ll also get decisions from Norway, Sweden and across the eurozone – they are all expected to leave interest rates on hold, though.
The agenda
8.30am GMT: Sweden interest rate decision
9am GMT: Norway interest rate decision 9am
12pm GMT: Bank of England interest rate decision
1.15pm GMT: European Central Bank interest rate decision
1.30pm GMT: US inflation report for November
1.45pm GMT: European Central Bank press conference
