The Bank of England reduced Bank Rate to 3.75% on 18 December after a narrow 5–4 vote, citing continued disinflation and softer activity. Officials kept to cautious guidance that, if progress on prices persists, rates are likely to decline only gradually from here. The tone signalled that any additional easing will be judged meeting by meeting.
The split comes a month after the Committee held at 4% by 5–4, underscoring finely balanced risks between persistent services inflation and weakening demand. Today’s majority judged that slack is building and the disinflation process is more established; the minority preferred to hold given still‑elevated wage and services price pressures.
Inflation data released by the Office for National Statistics show CPI at 3.2% in the year to November 2025, lower than October’s 3.6%. The Bank’s November Monetary Policy Report already set out that, if disinflation continued, rates would move down only gradually and that, as policy eases, how much further to cut would “inevitably become a closer call”.
Fiscal measures announced in the 26 November Budget are expected to trim headline inflation next year. HM Treasury’s Budget 2025 document, reflecting the OBR’s assessment, states the package will reduce CPI by around 0.4 percentage points in 2026, supporting a return towards the 2% target earlier than previous projections.
Growth indicators remain weak. The ONS estimates GDP fell by 0.1% in October after a similar drop in September, and the Bank now expects flat output in the final quarter of 2025. This combination of softer demand and easing price pressures framed the majority’s case for a modest pre‑Christmas cut.
Labour market data point to accumulating slack. The unemployment rate rose to 5.1% in the three months to October, while private‑sector pay growth has eased. These developments align with the MPC’s judgement that domestic price and wage pressures are moderating, albeit not uniformly across sectors.
For households, the transmission will be uneven. Tracker‑rate and standard variable‑rate borrowers will feel the earliest relief; industry figures suggest a typical quarter‑point move trims a tracker payment by roughly £29 per month, with around half a million borrowers on trackers. Most mortgage holders on fixes will see no change until renewal.
Savings rates are likely to edge down for easy‑access accounts, while lenders’ pricing of new fixed‑rate mortgages may continue to drift lower if funding costs fall. The immediate impact will vary by provider and product, reflecting pass‑through decisions and market competition noted by banks and brokers in recent months.
Business intelligence gathered by the Bank’s Agents continues to describe a flat economy heading into year‑end. Contacts report consumers prioritising value for money, weak volumes in many consumer services, and firms trying to contain price rises; investment plans remain limited until at least part‑way through 2026.
Forward guidance remains restrained. The November Monetary Policy Report states that, if disinflation progresses, Bank Rate is “likely to continue on a gradual downward path”, but as rates fall the case for further reductions becomes more finely balanced. The next MPC decision is scheduled for Thursday 5 February 2026.