Bank of England Cut Rates by 25 bp

2025-12-18 · Market News · QuoteReporter

Summary

The Bank of England (BoE) announced a reduction in the Bank Rate by 0.25 percentage points to 3.75%, as decided by the Monetary Policy Committee (MPC) on December 17, 2025. The decision, made by a narrow majority of 5-4, aims to steer the Consumer Price Index (CPI) inflation towards the target of 2% in the medium term.

Key Details

The MPC’s decision to lower the Bank Rate from 4% to 3.75% reflects a response to easing CPI inflation, which has dropped to 3.2% from previous higher rates. The committee highlighted a balance of risks between inflation persistence and weaker demand. The extent of future monetary policy easing will hinge on the evolving inflation outlook, with the next rate review scheduled for February 5, 2026.

Economic Context

The UK’s economic growth has been subdued, with recent data indicating a slowdown in pay growth and services price inflation. The MPC noted a decrease in CPI inflation, influenced by lower food price inflation and regulatory changes affecting household energy bills. Despite a temporary expected rise in inflation due to factors like tobacco duty and airfares, the overall trajectory is towards the target inflation rate. The labor market shows increasing slack, with rising unemployment and redundancy rates alongside stable vacancy levels.

Market Implications

The rate cut is likely to influence the GBP and UK gilt yields, potentially easing borrowing costs and affecting investor sentiment towards UK assets. Financial markets had anticipated the rate reduction, as reflected in stable UK financial conditions and market pricing ahead of the announcement. The decision aligns with a broader trend of reduced policy restrictiveness observed since August 2024, with a total reduction of 150 basis points in the Bank Rate since then.

Next Steps

The MPC has set the next review of the Bank Rate for February 5, 2026. Future policy decisions will continue to be guided by inflation projections and economic indicators. The committee remains cautious, indicating that decisions on further easing will be closely contested based on incoming data. The minutes from the MPC meeting underscore the importance of upcoming economic surveys and fiscal developments in shaping the monetary policy outlook.

Original Bank of England Announcement

Title: News // Monetary Policy Committee (MPC)
18 December 2025
Bank Rate reduced to 3.75% – December 2025…
Date: 2025-12-18
Source: BankofEngland.co.uk