The Bank of England is widely expected to deliver a pre-Christmas boost to borrowers by cutting interest rates on Thursday, following a significant drop in inflation.
Inflation Falls, Paving Way for Rate Cut
Official data released this week showed the Consumer Prices Index (CPI) measure of inflation fell to 3.2 per cent in November, down from 3.6 per cent in October. This marks the lowest level of inflation recorded in eight months.
The decline was largely driven by slowing price rises for food and drink, where inflation dropped to 4.2 per cent from 4.9 per cent. Costs for alcohol and tobacco also showed a notable easing, contributing to the overall downward trend.
Fourth Rate Reduction Expected This Year
Economists believe the Monetary Policy Committee (MPC) will almost certainly respond to the improving data by voting to cut the Bank's base rate. The anticipated move would see the rate lowered from four per cent to 3.75 per cent.
If enacted, this would represent the fourth rate cut in 2025, following previous reductions in February, May, and August. Crucially, it would bring borrowing costs to their lowest point since the start of February 2023, offering tangible relief to homeowners on variable-rate mortgages.
Economic Context Forces the Bank's Hand
The Bank of England has been cautious about cutting rates too quickly, wary of persistent inflationary pressures. However, a recent series of weak economic indicators has made a cut increasingly inevitable.
Key factors influencing the decision include:
- The UK economy contracted by 0.1 per cent in October.
- Unemployment has been rising while wage growth slows.
- Most significantly, inflation has fallen faster than many analysts predicted.
The confluence of this data has shifted the balance, making a rate cut the most likely course of action. The Bank's final decision will be announced at midday on Thursday, 18 December 2025.
