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.
