Bank of England cuts rates to 3.75% as inflationary pressures ease and unemployment rises

The Bank of England’s Monetary Policy Committee (MPC) reduced interest rates by 0.25% to 3.75% today, as signs of a softening labour market and lower inflationary pressures paved the way for policy easing.

Though the cut was highly anticipated by markets, the decision was surprisingly close, with a split majority of 5-4 in favour.

Paul Gibney, Partner in LCP’s investment team, commented: “The MPC’s decision today to lower rates to 3.75% is an early Christmas present for a UK economy in desperate need of some festive cheer. October’s unexpected GDP contraction coupled with rising unemployment levels and slowing wage growth, had already made a case for monetary stimulus. The subsequent announcement of the larger-than-expected fall in inflation from 3.6% to 3.2% in November gave the committee the justification it needed – just – to cut.”

He added:

“Like many of us, after a tough year, the MPC is probably looking forward to the Christmas and New Year break, a chance to recharge and reflect. And they’ll have much to reflect upon come 2026, including just where the ‘neutral’ interest rate should settle in the longer term – where monetary policy neither stimulates nor constrains the economy – and how quickly that level might be reached. Excerpts from the minutes of today’s MPC meeting, plus the closeness of the vote to cut, suggest a cautious approach to future rate decisions, given the level of economic uncertainty and the persistence of above target inflation.”