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-  MPC cuts Bank Rate by 25bps in tight decision
-  Governor casts decisive vote as four hawks dissent
-  Policymakers cite easing inflation, softer growth and labour slack
-  Statement signals a more cautious approach to rate pace
-  Economists still see scope for further easing in 2026

By Harry Daniels
LiveSquawk News
@HarryDaniels71

18 December 2025 | 18:00 GMT

LONDON -- It was a close call, but Christmas came early for UK households as the Bank of England delivered on expectations and lowered borrowing costs.

The Monetary Policy Committee voted by a narrow 5–4 margin to cut Bank Rate by 25 basis points to 3.75% at the conclusion of its two-day meeting. Governor Andrew Bailey cast the decisive vote, siding with the doves, while Megan Greene, Clare Lombardelli, Catherine Mann and Huw Pill voted to keep rates on hold.

In its accompanying statement, the Bank acknowledged that inflation had fallen further since the previous meeting, with both pay growth and services price inflation continuing to ease. Policymakers also pointed to subdued economic growth and increasing slack in the labour market.

JP Morgan’s Allan Monks said there had been a risk of a more dovish outcome following November’s sizeable downside CPI miss. However, he noted this was tempered by signs of lingering stickiness in pay growth — not so much in current data, but in forward-looking indicators for 2026.

With no press conference scheduled, Bailey used post-decision media interviews to explain his shift. He said he had been “very encouraged” by progress in returning inflation to target, adding: “I think now that we’re on a path where we’ll probably be around this level for a few months. But we think that come the spring — April or May — we should see another quite sharp drop, and take this, I hope, to around target.”

While the statement left the door open to further easing, it suggested the hurdle for additional cuts has risen.

“The extent of further easing in monetary policy will depend on the evolution of the outlook for inflation. On the basis of the current evidence, Bank Rate is likely to continue on a gradual downward path. But judgments around further policy easing will become a closer call,” the MPC said.

Despite the relatively cautious tone, ING’s James Smith argued this was not a game-changer. He noted that the distinction between hawks and doves has blurred. “Fundamentally, the Bank — or most officials at least — still think further cuts are likely. It has not changed our view that the Bank will cut rates twice more next year,” he said.

Deutsche Bank struck a similar note, forecasting that a sharp fall in CPI next year, alongside a deteriorating labour market, would keep quarterly rate cuts on the table. “We maintain our long-standing call for two further rate cuts in 2026 — one in March and one in June — taking Bank Rate to a terminal level of 3.25%,” the bank said.