BoE splits over pace of rate cuts as MPC votes 5-4 to cut to 3.75%

The Bank of England’s Monetary Policy Committee voted 5-4 to cut the policy rate from 4% to 3.75% on Thursday, a move that underscored persistent splits over how fast the central bank should ease further. The decision came after Governor Andrew Bailey shifted to back rate reductions, having sided with the hawks to hold last month, and it keeps the institution on a gradual easing trajectory.

Hawks on the MPC, including chief economist Huw Pill and deputy governor Clare Lombardelli, argued that inflation at 3.2% remains well above the 2% target and that the Bank cannot move too quickly. Doves such as Sarah Breeden and Dave Ramsden contended that inflation risks were receding, though they too are divided. Two other members, Swati Dhingra and Alan Taylor, have grown increasingly worried that softer consumer demand and rising unemployment are already dampening inflation pressures. The result was a narrow split that reflected a broader contending view of how quickly price pressures might lift or slow in the coming year.

The MPC’s move was widely anticipated, coming a day after official data showed November inflation at 3.2%—an eight-month low that had sparked hopes for a more aggressive easing path. In its statement, the Bank said inflation is expected to move toward 2% much more quickly than previously estimated—by April rather than early in 2027. It also marked a downgrade to the growth outlook for the end of this year, while Bailey signaled the Bank would remain vigilant about the risk of surging unemployment. Yet the Governor framed the cut with caution, insisting policy would continue to move along a gradual downward path and that each new cut narrowed the degree of further easing that may be required.

The trade-off between inflation and growth was reflected in the market’s response. The pound initially rose about a cent against the dollar before settling near $1.34, and 10-year gilt yields climbed above 4.5% before easing. Investors priced in roughly one to two quarter-point reductions next year, a path that aligns with the Bank’s cautious messaging about the pace of further cuts. Andrew Wishart, senior UK economist at Berenberg, noted that while the Bank delivered the cut as expected, the deterioration in the data did not alter its overarching narrative. “Although the Bank reduced its policy rate from 4% to 3.75% as investors anticipated, the recent deterioration in the economic data did not alter its overarching narrative. Only Governor Andrew Bailey switched his vote from a hold to a cut, turning the minority of four for a cut then into a majority of five today. The MPC continued to guide that the cadence of bank rate reductions will slow,” Wishart said.

The decision marks the sixth cut since the Bank started easing in the summer of 2024, moving the base rate from 5.25% to 3.75%. While the pace of reductions is slowing, the MPC’s forecast and Bailey’s commentary suggest policymakers want to preserve headroom to respond to any renewed inflation pressures or a sharper economic slowdown. The divergence within the MPC continues to be a feature of the policy outlook, with the inflation trajectory and the strength of the labor market now the principal variables shaping the path ahead.

For households and businesses, the outcome offers a small reprieve in borrowing costs, even as uncertainty remains about how quickly rates will fall further. Policymakers stress that any further easing will depend on the persistence of inflation and the resilience of the economy, especially given signs of cooling demand and a softer job market. As the Bank maps the road ahead, investors will closely watch the data for clues on whether the next moves will be more aggressive or more incremental, and how the balance between price stability and growth evolves in a still choppy domestic and global landscape.