Key Takeaways
- The Bank of England makes a fourth interest rate cut in the last meeting of 2025, following cuts in February, May, and August.
- Questions remain over the BoE’s rate cutting cadence in 2026, amid falling inflation and sluggish economic growth.
- The Bank now forecasts UK inflation to fall back to target in 2026, rather than in 2027.
The Bank of England has cut UK interest rates by a quarter point to 3.75%, marking the fourth change to monetary policy since the start of 2025. The decision comes a day after inflation figures came in lower than forecast for November, as the UK central bank brings forward forecasts for a return to the 2% inflation target.
Thursday’s move was widely anticipated by futures markets, which attributed a near 100% chance of a 25 basis point cut ahead. It’s the first time since December 2022 that rates have been changed at the last meeting of the year.
The Bank’s monetary policy committee voted by a majority of five-to-four for the cut, with the four minority voters all voting to hold rates at 4%.
The committee also said the 2026 path of interest rates is still not certain: “The extent of further easing in monetary policy will depend on the evolution of the outlook for inflation. The restrictiveness of policy has fallen as bank rate has been reduced by 150 basis points since August 2024.”
“On the basis of the current evidence, the Bank Rate is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call,” it added.
Will the Bank of England Continue to Cut Rates in 2026?
With no meeting in January, investors will look to the next monetary policy decision in early February. By that time December inflation figures will have been published by the Office for National Statistics. This data will likely to show another fall in the Consumer Prices Index.
At present there is still no majority consensus on when the Bank of England could cut rates in 2026. That said, following publication of the UK’s latest inflation data on Wednesday, interest rate swaps data showed sentiment edging toward a majority 50%-plus consensus on a rate cut at the Bank’s April meeting. At the moment, markets deem that outcome 46% likely. Though Wednesday brought good news in the form of lower-than-expected inflation data, economists still want to see inflation consistently falling.
“It isn’t clear when or even whether the Bank of England can continue its rate cutting cycle unless inflation starts trending decisively down,” said Enrique Diaz-Alvarez, chief economist at Ebury.
Bank of America analysts said: “The BoE is also likely to emphasize that as rates are less restrictive, the decision for future cuts is becoming finely balanced.”
Others are more certain of the Bank’s gradual rate cutting trajectory continuing.
“We expect inflation to fall below 2% in the second half, justifying more than the two cuts currently priced,” said Michael Browne, global investment strategist at Franklin Templeton Institute.
What Did the Bank of England Say About Inflation?
Thursday’s news follows better-than-expected Office for National Statistics inflation data for the 12 months to November 2025, which showed inflation had slowed to 3.2% from 3.6%. This is still significantly above the Bank of England’s annual 2% target, but at least shows some evidence that disinflation is under way in the UK economy.
While the the Bank of England said in November that inflation had peaked, it forecast that CPI would fall back to target in 2027.
But on Thursday, the BoE said that Autumn Budget changes, as well as some downward moves in sterling oil and gas futures, had led Bank staff to “lower their expectation for CPI inflation to closer to 2% in 2026 Q2.”
The news also comes amid a weakening labor market, with the latest UK unemployment data showing a rise in joblessness to 5.1% in the three months to October.
When Are the Bank of England Interest Rate Decisions in 2026?
The Bank of England will meet eight times in 2026 to decide on the next steps for interest rate policy, on the following dates:
- Feb. 5, 2026.
- March 19, 2026.
- April 30, 2026.
- June 18, 2026.
- July 30, 2026.
- Sep. 17, 2026.
- Nov. 5, 2026.
- Dec. 17, 2026.
James Gard contributed to this article.
