The Bank of England cut its key interest rate by a quarter-point to 3.75 percent, saying that the U.K. economy had cooled enough to justify loosening financial conditions.
The move was widely expected after data earlier this week showed that unemployment had risen to its highest in over four years in October, while inflation slowed more sharply than forecast in November as supermarkets and other retailers found it harder to pass on price increases.
“We think that Bank Rate is likely to fall gradually further in future, but that will depend on whether variables like pay growth and services inflation continue to ease,” Governor Andrew Bailey said in a statement accompanying the Monetary Policy Committee’s decisions.
The cut was the fourth this year, and the sixth since it started cutting rates in 2024 as the post-pandemic wave of inflation started to ebb. It brings the U.K.’s key rate down to its lowest in nearly three years, and will immediately benefit businesses whose borrowing costs are largely floating. It’s also likely to bring down the key two-year government bond yield, to which most new mortgages in the country are closely linked. That rate has already fallen some 0.15 percentage points in the last week in anticipation of today’s move.
The MPC voted 5-4 in favor of the move, with both Chief Economist Huw Pill and Deputy Governor for Monetary Policy Clare Lombardelli, voting against a cut.