Bank of England Signals Possible December Rate Cut as Inflation Eases

Hadisur Rahman, JadeTimes Staff

H. Rahman is a Jadetimes news reporter covering Business

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Image Source: Dinendra Haria/SOPA Images/Shutterstock

The Bank of England has hinted at a potential interest rate cut in December after keeping borrowing costs steady and indicating that inflation has peaked. The decision comes just weeks before Chancellor Rachel Reeves delivers her crucial budget.

The Bank’s Monetary Policy Committee voted narrowly, five to four, to hold the benchmark interest rate at 4 percent for a second consecutive meeting. Governor Andrew Bailey, who cast the deciding vote, said the Bank would “wait and see” how inflation evolves and whether the upcoming budget affects economic conditions.

“We still think rates are on a gradual path downwards, but we need to be sure that inflation is on track to return to our 2 percent target before we cut them again,” Bailey said.

Inflation currently stands at 3.8 percent, almost double the Bank’s target but below earlier forecasts. The Bank expects the rate to fall to about 2.5 percent next year and reach its goal by 2027. Economists said this outlook strengthens the case for a rate reduction after Reeves’s fiscal statement on 26 November.

Reeves welcomed the Bank’s forecast, saying her upcoming budget will make “fair choices” to strengthen the economy while reducing debt and living costs. Market analysts now see a roughly 60 percent chance of a quarter-point rate cut next month.

The Bank’s report also highlighted growing economic weakness, with unemployment projected to rise above 5 percent early next year and GDP growth expected to slow to 1.2 percent in 2026. Officials cited sluggish exports, manufacturing disruptions, and cautious household spending as key drags on growth.

While Chief Economist Huw Pill warned that “intrinsic inflation persistence” remains a concern, Bailey said the risk of entrenched inflation is fading. He added that if the disinflation trend becomes clearer in the weeks ahead, he would support lowering rates in December.