This cut reflects some concerns about a lacklustre economypublished at 12:06 GMT
Faisal Islam
Economics editor
The Bank of England governor Andrew Bailey has timed this rate cut just before Christmas.
And while this will be welcomed for many borrowers and businesses, the Bank sent out some caution about whether the cuts would continue at the same speed next year.
It might take a lot more for the much-needed jolt of confidence and festive spirit to spread across the economy to businesses that paused investments, and consumers who sat on their savings.
It was a narrow decision, with the governor as the swing voter from hold last month to cut today. Andrew Bailey said we had “passed the peak of inflation”.
His team now believe, following the Budget and yesterday’s sharp fall in inflation, that the headline rate of inflation will be “closer” to target by April, rather than in 2027. He confirmed a prediction that the chancellor’s Budget measures will take 0.5 percentage points off the headline rate of inflation.
The Bank of England’s cut, sixth time since last summer, takes base rates to below 4% for the first time since early 2023. Bailey said that rates were still on a gradual path downwards, but how much further they go was now “a closer call”.
The cut reflecting some concerns about a subdued and lacklustre economy, with no growth now expected in the current final quarter of 2025.
While the rate-setting Monetary Policy Committee agrees that rates were still heading downwards next year, some members who voted for the cut suggested the roughly one cut a quarter speed of cuts could be slower from here.
Much now depends whether businesses and consumers, who have paused investment and spending, and increased savings, now regain confidence, for the future.