As expected, especially after the lower than anticipated inflation figures that were announced on Wednesday (+3.2% against a consensus view of +3.6%), the Bank of England’s MPC voted to cut Bank Rate by 25 basis points to 3.75%. This follows the similar cut by the US Federal Reserve, while the ECB voted not to change its rates.
However, the vote was close, with the 5-4 majority being reached by the Governor’s deciding vote – in recent meetings it has been clear that he is the swing voter with the other 8 members of the Monetary Policy Committee (MPC) being evenly split into two consistent camps.
The attributed comments that are now included in the minutes of the meeting show that the “doves” think inflation is on track to get back to target – indeed, a couple of comments suggest that the latest data put it ahead of the November inflation forecast – while there is concern at the lack of impetus in the economy. The other camp – the “hawks” – think that there are enough upside risks to inflation, mainly from consumers inflation expectations and wages in the service sector (where inflation is strongest), to outweigh the risk of under-shooting the target from weak demand.
In his comments, the Governor (Andrew Bailey), notes that “While I see scope for some additional policy easing, the path for Bank Rate cannot be pre-judged with precision, recognising in part the more limited space as Bank Rate approaches a neutral level”. This has been interpreted as suggesting that the pattern of alternating decisions between “cut” and “hold” will not continue in 2026 and, unless the data points to a significant lowering in the inflation and/or activity forecasts when the Bank next reports in February, we are unlikely to see another cut in interest rates until later in the year.
Having said this, their headlines do still point to the next change being a cut in rates with the statement that “We still think that interest rates are on a gradual downward path.”
For more details, you can get the Monetary Policy Summary and minutes of the MPC meeting from the Bank’s website at https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2025/december-2025 (this page also has a link to a shorter explanation of the latest decision) or request this from MTA.