Bank of England cuts interest rates, in welcome Christmas boost for consumers

The Bank of England voted narrowly to cut interest rates on Thursday, in its last monetary policy move of 2025.

The target="_blank" kwlink="6384064000816950219725">target="_blank" kwlink="6384064000971585773080">central bank's nine-member monetary policy committee (MPC) on Thursday voted 5-4 to trim the benchmark interest rate by 25 basis points to 3.75%, marking the fourth cut of the year.

Economists had widely expected the rate trim, which comes at a time of lackluster economic data, softening labor market and a recent decline in inflation that outpaced expectations.

Nonetheless, the vote was a narrow one, with BOE Governor Andrew Bailey siding with more dovish members of the committee rather than the four policymakers who maintain that the inflation rate, at 3.2% in November, is still far from the central bank's 2% target.

In a statement, the MPC said that while inflation remained above target, “it is now expected to fall back towards target more quickly in the near term.”

However, it cautioned that “the extent of further easing in monetary policy will depend on the evolution of the outlook for inflation.”

On the basis of current evidence, the MPC said the “Bank Rate [the BOE's benchmark interest rate] is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call.”

was flat against the dollar after the announcement, as was the . The yield on the benchmark 10-year U.K. gilt was up 3 basis points to 4.510%.

For now, the cut in rates will be welcomed by hard-pressed consumers as it makes borrowing cheaper, but many lose out with lower returns on their savings.

Chancellor Rachel Reeves cheered the central bank's trim, saying it would help with cost of living pressures.

“Today's interest rate cut is the sixth since the election [in July 2024], the fastest pace of cuts in 17 years and good news for families with mortgages and businesses with loans,” she said in comments on X, while adding that “there's more to do on the cost of living.”