Bank of England cuts interest rate to 3.75% to shore up slowing UK economy

The Bank of England is poised to deliver a pre-Christmas boost to borrowers today, with financial markets and economists overwhelmingly expecting a cut to the UK’s main interest rate.

Analysts forecast that the monetary policy committee’s decision due at 12:00 GMT is expected to lower the Bank Rate from 4% to 3.75%.

This would mark the second consecutive cut following a reduction in August and bring borrowing costs to their lowest level since January 2023.

This expected move follows recent economic data providing the Bank with greater confidence that inflationary pressures are easing.

According to the official figures released on Wednesday, December 17, a sharp decline in Consumer Prices Index (CPI) to 3.2% in November, moving closer to the Bank’s 2% target.

This was accompanied by data indicating a rise in unemployment to a five-year high and a contraction in economic output for October, strengthening the case for more supportive monetary policy.

With the quarter-point cut, an immediate relief to an estimated 500,000 homeowners will be provided with tracker mortgages likely reducing a typical monthly payment by around £29.

It is also expected to lower costs for new loans and variable-rate borrowing.

But, the Bank’s statement and accompanying minutes will be scrutinized for signals on the future path of rates. Analysts remain divided, with some concerned over persistent inflation in the services sector.

The central bank’s major mandate is to make sure inflation returns sustainability to its 2% target, and today’s decision will balance that goal against growing signs of economic weakness.