Bank of England Cuts Rates to 3.75% as Growth Outlook Weakens
Sixth rate reduction since last year, with inflation easing but economy showing fragility under Labour policies.
The Bank of England cut the Bank Rate by a quarter of a percentage point to 3.75 percent, marking the sixth reduction since August last year and coming in a narrowly split 5-4 vote. Policymakers said inflation has presumably passed its recent peak and will continue to ease, with projections indicating inflation near the 2 percent target by April, earlier than previously forecast. The Bank also downgraded its growth outlook for the final quarter of the year to zero, underscoring a fragile economy even as price pressures ease.
The decision will provide relief to borrowers on variable-rate and tracker mortgages, with the cut lowering the typical monthly payment on a tracker loan by about £28.77 and on a standard variable-rate mortgage by about £13.88, according to Bank calculations. The Bank added that measures in Chancellor Rachel Reeves’s Budget — including energy-bill relief and changes to fuel duty — are expected to shave roughly half a percentage point off inflation in April.
Despite the easing in inflation, the broader economy has weakened. GDP contracted in October, prompting the Bank to push down its forecast for fourth-quarter growth to zero. Governor Andrew Bailey stressed that the Bank remains vigilant about the labour market, saying, "While I do not yet see conclusive evidence of a sharper downturn in the labour market, we should be vigilant." The vote pattern, with one MPC member among the dissenters in favor of the cut, underscored ongoing concerns about inflation persistence versus growth weakness.
The Bank’s quarterly survey of business conditions painted a bleaker picture: Labour’s policy agenda and a workers’ rights bill were deterring hiring, with significant headcount reductions already reported and many employers planning to reduce headcount next year. High street conditions remained challenging as consumers stayed cautious and focused on value-for-money. The Bank has now cut rates six times since August last year, trimming the rate from 5.25 percent to 3.75 percent, but officials cautioned that the path ahead depends on how inflation evolves and how the economy performs.
Reaction from the opposition and business groups was mixed. Shadow Chancellor Sir Mel Stride welcomed lower borrowing costs for households but argued that inflation remains above target in a weak growth environment under Labour, calling the economic situation a result of policy choices. He said the Conservatives would deliver a stronger economy with bolder steps. Suren Thiru, economics director at the ICAEW accountancy group, called the cut a timely boost for households squeezed by higher mortgage bills and for businesses facing rising costs, while noting that the committee remains wary of inflation persistence and the need for careful calibration as conditions evolve.
Looking ahead, analysts highlighted that the policy path will hinge on incoming data on inflation, the labour market and growth. With six rate cuts in the past year, some strategists foresee scope for further easing if conditions deteriorate, while others expect the Bank to slow the pace as it approaches what it sees as the neutral rate. The Bank signaled that it will monitor the impact of Reeves’s Budget and broader economic developments and adjust policy as needed to balance price stability with growth. 
Ultimately, the decision reflects a delicate balancing act: support for borrowers and the broader economy amid a cooling inflation backdrop, offset by ongoing concerns about a fragile labour market and slower growth under the current political framework. Investors will be watching upcoming data releases closely to gauge whether more easing is warranted or if policymakers will pause to assess the cumulative effects of prior cuts and fiscal measures. 