- Decision
- Lower
- Rate change
- 25 bps
- bank rate
- 3.75%
The Bank of England’s Monetary Policy Committee voted 5–4 to cut Bank Rate by 25 bp to 3.75 percent at its 17 December meeting, citing faster-than-expected disinflation, easing pay and services-price pressures, subdued growth and a further loosening labour market as CPI fell to 3.2 percent in November and is now projected to approach the 2 percent target by 2026 Q2. After reducing the rate to 4.0 percent in August and holding at 4.0 percent in November, the MPC has now lowered Bank Rate by a cumulative 75 bp since May 2025 and by 150 bp since August 2024. Policy implementation continues to centre on the Bank Rate, which the Committee still judges to be in restrictive territory even as credit supply improves and broad money growth remains modest. The unemployment rate has risen to 5.1 percent, private-sector regular pay growth has decelerated to 3.9 percent and GDP is flat, with Bank staff expecting zero growth in 2025 Q4 after 0.1 percent in Q3. UK financial conditions and medium-term market inflation expectations are broadly unchanged, while global activity has proved more resilient than anticipated, with limited drag from trade tensions and Chinese export price deflation. The MPC reiterates that further easing will depend on incoming data; it judges Bank Rate is “likely to continue on a gradual downward path” but sees decisions becoming “a closer call” as the policy stance nears neutrality.
Rate evolution
Since June 2025, the Bank of England has cut Bank Rate by 50 basis points from 4.25% to 3.75%, with reductions in August and December, an autumn pause and holds in April, June, July and September 2026, citing substantial disinflation, weak GDP growth, a loosening labour market and moderating pay. The Monetary Policy Committee remained vigilant over services inflation, expectations and wage and price persistence as administered, food and energy prices lifted headline CPI inflation, but by late 2025 and early 2026 it judged persistence risks less pronounced and weaker demand more apparent as CPI inflation peaked and pay and services inflation eased further, while retaining a gradual, non-pre-set easing bias.
In April, the Committee voted 8-1 to maintain Bank Rate at 3.75%, with one member preferring an increase to 4%, as the Middle East conflict raised the energy price outlook and CPI inflation increased to 3.3%, flagging risks of second-round effects while noting that a loosening labour market, a weakening economy and tighter financial conditions could contain inflationary pressures. It held Bank Rate at 3.75% by a 7-2 vote in June as CPI inflation fell to 2.8% and global energy prices declined but remained above pre-conflict levels and volatile, then held again by a 6-3 vote on 29 July, when three members preferred an increase to 4% and persistent energy-price volatility and second-round risks tilted inflation risks upward despite continued underlying disinflation and a fall in CPI inflation to 2.6%.
At its meeting ending on 16 September, the Committee maintained Bank Rate at 3.75% by another 6-3 vote, with three members again preferring an increase to 4%, as the protracted Middle East conflict drove further increases in volatile energy prices and CPI inflation rose to 3.1% in August. It noted little evidence so far of material second-round effects and said soft labour market conditions and higher interest rates faced by households and businesses would reduce inflation over time despite slightly stronger activity, but judged that risks to the inflation outlook had tilted further to the upside since July.