The Bank of England is poised to deliver a significant pre-Christmas boost to the UK economy, with a cut to interest rates widely anticipated later today.
Inflation Undershoot Paves the Way for Cut
The central bank's decision follows official data released on Wednesday which showed inflation cooled more than expected. The Office for National Statistics (ONS) reported that the Consumer Prices Index (CPI) rose by 3.2 per cent in the year to November, down from 3.6 per cent the previous month.
While this remains above the Bank's two per cent target, the undershoot against market forecasts has increased pressure on the Monetary Policy Committee (MPC) to act. The move would be seen as a major win for Chancellor Rachel Reeves and the Labour government, who have prioritised reducing the cost of living.
Political and Economic Pressure Mounts
Chancellor Reeves welcomed the inflation data, stating: "Getting bills down is my top priority. That is why I froze rail fares and prescription fees and cut £150 off average energy bills at the Budget this year." She added that the Bank of England agreed these measures would help lower prices.
Further impetus for a rate cut came from Tuesday's labour market figures, which revealed a slight increase in unemployment, highlighting the strain on the economy. However, the decision is still considered a close call, with Governor Andrew Bailey potentially holding the casting vote. He previously sided with the minority to hold rates steady in the last meeting.
What the Markets Expect
Economists on City AM's Shadow Monetary Policy Committee have voted in favour of a reduction. The consensus points towards a cut of 25 basis points, which would bring the main Bank Rate down to 3.75 per cent.
Financial markets are reacting cautiously ahead of the announcement, with the FTSE 100 index forecast to open flat. The decision, due at midday on Thursday 18 December 2025, will be closely scrutinised for signals about the Bank's future policy path as it balances the fight against inflation with supporting economic growth.
