BoE cuts interest rates to 3.75%

The Bank of England (BoE) has voted to cut interest rates from 4% to 3.75%, the lowest the level has been since February 2023, and marking the fourth rate cut made this year. 

The bank’s Monetary Policy Committee (MPC) voted by a majority of five to four to reduce Bank Rate by 0.25%, with four members voting to keep the rate steady at 4%.

At the bank’s meeting last month, the committee had voted by a majority of five to four to maintain the rate at 4%, having been previously cut down from 4.35% in August. 

The latest cut comes as UK inflation slowed more than expected to 3.2% in November, marking the lowest level recorded in eight months, as food, alcohol and clothing prices helped drive the rate down.

While the BoE noted this was still above its 2% target, it said inflation is “now expected to fall back towards target more quickly in the near term”.

In particular, the bank noted that measures in the recently announced budget, including one-off reductions to regulatory costs levied on households’ energy bills, as well as changes to fuel duty, will help inflation fall further.

Governor Andrew Bailey said: “Data news since our latest meeting suggests that disinflation is now more established. CPI inflation has fallen from its recent peak and upside risks have eased. Measures in the budget should reduce inflation further in the near term. 

“The key question for me now is the extent to which inflation settles at the 2% target in an enduring way. Slack has continued to accumulate in the economy. Unemployment, underemployment and flows from employment to unemployment have all risen. While I do not yet see conclusive evidence of a sharper downturn in the labour market, we should be vigilant. On the other hand, inflation expectations have not yet shifted downward sufficiently following the past few years of persistent above-target inflation.” 

He added: “And the strength in forward-looking wage growth indicators is hard to reconcile with the downward momentum in current indicators of inflation and pay as well as rising unemployment. I will continue to assess these risks as the evidence accumulates.”