Bank of England Cuts Interest Rate but Leaves Future Moves in Doubt
December 18, 2025
Among the many central bank interest rate announcements made today, the most surprising came from the Bank of England‘s. The rate cut of 25 basis points to 3.75% — a low not seen since January 2023 — met expectations, but following a sharper slide in British consumer price inflation to an 8-month low of 3.2%, market participants were prepped for a clearly more dovish defense of today’s action than they got. Only Governor Bailey switched his vote of no rate change at the prior meeting, and he made clear that his switch was made with hesitation:
Inflation expectations have not yet shifted downward sufficiently following the past few years of persistent above-target inflation. And the strength in forward-looking wage growth indicators is hard to reconcile with the downward momentum in current indicators of inflation and pay as well as rising unemployment.
Chief economist and member of the the Monetary Policy Committee Huw Pill, who maintained a preference for not cutting the interest rate, added:
I continue to judge the risk of inflation stabilizing at above-target levels owing to structural changes in price and wage-setting behavior as greater than the risk of inflation undershooting the target owing to weak demand. Given this balance of risks, the case for the further withdrawal of monetary policy restriction is becoming more finely balanced, and any additional steps in this direction should be cautious.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Bank of England
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