United Kingdom: Central Bank cuts rates in December
Bank resumes rate cuts after brief pause: In mid-December, the Central Bank voted to cut the bank rate to 3.75%, following cuts of 125 basis points from August 2024 to August 2025. A minority of members on the Bank’s committee voted to hold rates.
Positive inflation narrative drives decision: The Bank’s decision was underpinned by the drop-off in inflation since the middle of the year, the belief that inflation would continue to decline going forward, rising labor market slack and subdued economic growth.
More easing to come: The Central Bank said that the bank rate was “likely to continue on a gradual downward path”. This matches the prevailing opinion among our panelists: Virtually all panelists see at least one more rate cut between now and the end of 2026.
Panelist insight: On the outlook, Nomura analysts said:
“We continue to see one more rate cut, in April 2026, at which point we think guidance will be amended to a meeting-by-meeting approach. Still, if inflation falls as quickly as the MPC (and we) think, a type of informal easing bias might be retained.”
ING analysts had a slightly different take:
“The Bank of England has cut rates to 3.75%, but the decision was more hawkish than expected, leaving market rates higher and sterling slightly stronger. It’s a close call whether the Bank cuts again in February or March. But we think the UK will soon look like less of an inflation outlier, and we’re expecting two cuts in the first half of 2026.”