"The Bank opted to cut interest rates in its final meeting of 2025 in another close vote. While the decision was widely expected by financial markets, the vote required the Governor to break the tie once more, this time in favour of a rate cut.
“Recent data has strengthened the case for lowering interest rates. The labour market has weakened further, while underlying inflation has also continued to ease. Although there was no immediate fiscal tightening in the Budget, the Bank judged that the net impact of the measures is likely to push down headline inflation next year. Taken together, this was enough to justify the Governor switching his vote and siding with the more dovish camp of the MPC.
“In 2026, the pace of cuts is expected to slow as interest rates approach the Bank’s estimate of the neutral rate. The MPC has signalled that the scope for further cuts is narrowing, describing policy as becoming less restrictive. Additionally, there is significant division within the MPC regarding the balance of risks to the inflation outlook, which will make it more difficult to build consensus for further rate cuts next year. As a result, we expect only two interest rate cuts in 2026, taking rates down to 3.25%.”
