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The Bank of England cut its key interest rate by a quarter point to 3.75% on Thursday as UK growth remains weak and unemployment high.
The decision was supported by fresh inflation data this week, which showed that price pressures dropped to their lowest level in eight months in November. CPI was recorded at 3.2%, down from 3.6% in October.
Thursday’s cut — which brings the BoE’s key rate to its lowest point in around three years — will bring some Christmas cheer to finance minister Rachel Reeves and Prime Minister Keir Starmer, who have so far failed to deliver on their promises to kickstart growth in the UK.
Analysts argue that such commitments have been hindered by a decision to increase employer social security contributions this year, as well as the lingering impacts of Brexit on investment and trade.
US tariff uncertainty and increases to the minimum wage have also left businesses more cautious about hiring, while productivity remains sluggish.
The latest figures show that the economy shrank by 0.1% in October, and also contracted by 0.1% in the third quarter of the year. The UK economy has expanded in only one of the past seven months, according to the UK’s Office for National Statistics.
While cooling inflation has shifted the BoE’s focus towards economic stimulus, price pressures are still above the central bank’s target.
Claire Lombardelli, the bank’s deputy governor, stressed earlier this week that “upside risks” to inflation remain, even as wage growth slows.
Writing ahead of the BoE’s decision on Thursday, economists at ING predicted two further cuts in February and April 2026.
The European Central Bank is also expected to announce its next interest rate move on Thursday afternoon, with no change anticipated.
