UK interest rates were cut to their lowest level in almost three years at the Bank of England’s December monetary policy meeting. Five of the nine members of the Monetary Policy Committee voted to reduce the key base rate by 25 basis points to 3.75%, with four voting for no change.
- Rates fell to their lowest level in almost three years
- CPI inflation eased to 3.2% in November
- Budget-related uncertainty affected economic activity in October
UK interest rates were cut to their lowest level in almost three years at the Bank of England’s (BoE’s) December monetary policy meeting. Five of the nine members of the Monetary Policy Committee (MPC) voted to reduce the key base rate by 25 basis points to 3.75%, with four voting for no change. This was the fourth and final rate cut for 2025, following reductions in May , February2 and August . The MPC cited “subdued economic growth (and) building slack in the labour market”, alongside easing pay growth and service price inflation.
“This was the fourth and final rate cut for 2025, following reductions in May, February and August”
The UK economy shrank by 0.1% over the three months to October. On a month-by-month basis, the economy contracted by 0.1% in October and in September, and stagnated during August. Activity in October was hampered by uncertainty ahead of November’s Budget; meanwhile, production output was adversely affected by the impact of a cyber-attack at car manufacturer Jaguar Land Rover. A weakening labour market provided additional impetus: the number of unemployed people in the UK rose to its highest level since January 2021 over the three months to October, while the rate of unemployment edged up to 5.1%. Elsewhere, the annualised rate of inflation fell from 3.6% to 3.2% in November – its lowest level since March. The drop was fuelled by lower prices for food, drink, and tobacco; looking ahead, the BoE expects inflation to return to its 2% target more quickly than previously forecast.
