Most experts believe a rate cut is almost a done deal for their final meeting of the year. If it happens, we could see interest rates drop to 3.75%-a significant relief compared to the 4.75% we started 2025 with. However, it’s not all smooth sailing. The economy continues to find it hard to build momentum, while inflation remains persistently above the Bank’s preferred 2% level. The monetary policy committee decision is likely to be closely split, with Governor Andrew Bailey expected to back a rate reduction.
Markets are largely anticipating a 0.25-point rate cut from the Bank of England in December, with swap data indicating a better than 90% likelihood. Economists say UK borrowing costs remain high, and weak growth makes a shift toward looser policy unsurprising. Bank of America analysts expect a narrow 5–4 vote among policymakers, with Governor Andrew Bailey potentially casting the deciding vote in favour of a reduction.
What Do We Know About UK Inflation and Economic Conditions?
The expected December decision follows a pause in November, which was largely attributed to uncertainty ahead of the government’s Autumn Budget. With fiscal plans now clearer, analysts say the Bank may return to cutting rates as economic conditions ease. While inflation seems to have passed its high point, it is still above target at roughly 3.5%, and slower growth alongside a cooling labour market is playing a growing role in shaping policy. Latest data from the Office for National Statistics indicated that the UK economy shrank by 0.1% in October after a small expansion in September. At the same time, unemployment has climbed to 5%, and falling job vacancies suggest demand in the labour market is easing.
Is the Bank of England Likely to Keep Cutting Rates in 2026?
Current market data suggests there is little enthusiasm for rate cuts in 2026, with April viewed as the only likely window for a move. However, some analysts argue that if the economic picture darkens, the Bank may be forced to change course. Economists also caution that the road to recovery will be slow. Yet, ironically, a prolonged slowdown could prove beneficial by helping to ease inflationary pressures throughout next year.