BoE Set To Cut Rates As Growth Falters And Inflation Cools
- MPC seen voting 5–4 to cut Bank Rate by 25bp to 3.75% - Weakening growth, softer labour data support case for easing - Inflation CPI undershoot bolsters case for a cut - Markets to focus on guidance, pace of cuts in 2026 - Announcement due at noon GMT
LONDON – Lingering doubts over the case for a Bank of England rate cut have faded in recent days, after UK data showed slowing growth, a loosening labour market and cooling price pressures.
The latest analysts’ poll expects the Monetary Policy Committee (MPC) to vote by a narrow 5–4 margin in favour of cutting Bank Rate by 25 basis points to 3.75% at the conclusion of its two-day meeting on Thursday.
Deutsche Bank’s Sanjay Raja expects Governor Andrew Bailey to cast the deciding vote. The committee voted by the same margin in November to keep rates unchanged.
What has shifted since that finely balanced decision is the accumulation of evidence pointing to further disinflation. Analysts argue the Governor will have seen enough cooling in private-sector pay momentum and in price pressures — including services CPI — to tilt the balance towards a cut.
“We think the MPC may be minded to drop ‘gradual’ from its collective guidance. With Bank Rate near the upper end of estimates of nominal neutral, we think the Bank will likely pivot to a more data-dependent stance, giving it greater flexibility on the timing of future cuts,” Raja said.
Faltering activity
Data released since the last meeting has reinforced the narrative of a weakening economy in need of support.
The Office for National Statistics reported last week that GDP contracted 0.1% in the three months to October, undershooting forecasts for a 0.1% expansion.
Meanwhile, the latest labour-market report published on Tuesday suggested conditions continue to soften. The ONS said the number of employees on payrolls fell again, “reflecting subdued hiring activity.”
On Wednesday, UK data showed an outsized drop in headline inflation, with CPI easing to 3.2% y/y in November from 3.6% previously.
The combination of faltering growth and cooling inflation has led markets to price in a near-100% probability of a quarter-point cut in December, but only around a 25% chance of a follow-up move in January.
Forward guidance required
Raja noted that with individual MPC members now able to set out their preferred policy paths more clearly in the minutes, “we expect the overall guidance to strike a more neutral tone, with ‘the timing of further rate cuts dependent on the evolution of prices and wage growth’, as laid out in the Bank’s last statement.”
Economists said markets would focus on whether the December decision alters the balance of probabilities for further easing in 2026.
George Buckley of Nomura said, “Here, we will be paying closer attention to what the internal MPC camps say. Any indication that greater weight is being placed on the loosening labour market would be read as a dovish signal heading into the new year. Signals that rate cuts can remain on a ‘gradual’ path, provided disinflation continues, would also validate expectations of a roughly quarterly pace of easing.”
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- MPC seen voting 5–4 to cut Bank Rate by 25bp to 3.75%
- Weakening growth, softer labour data support case for easing
- Inflation CPI undershoot bolsters case for a cut
- Markets to focus on guidance, pace of cuts in 2026
- Announcement due at noon GMT
By Harry Daniels
LiveSquawk News
@HarryDaniels71
17 December 2025 | 20:00 GMT
LONDON – Lingering doubts over the case for a Bank of England rate cut have faded in recent days, after UK data showed slowing growth, a loosening labour market and cooling price pressures.
The latest analysts’ poll expects the Monetary Policy Committee (MPC) to vote by a narrow 5–4 margin in favour of cutting Bank Rate by 25 basis points to 3.75% at the conclusion of its two-day meeting on Thursday.
Deutsche Bank’s Sanjay Raja expects Governor Andrew Bailey to cast the deciding vote. The committee voted by the same margin in November to keep rates unchanged.
What has shifted since that finely balanced decision is the accumulation of evidence pointing to further disinflation. Analysts argue the Governor will have seen enough cooling in private-sector pay momentum and in price pressures — including services CPI — to tilt the balance towards a cut.
“We think the MPC may be minded to drop ‘gradual’ from its collective guidance. With Bank Rate near the upper end of estimates of nominal neutral, we think the Bank will likely pivot to a more data-dependent stance, giving it greater flexibility on the timing of future cuts,” Raja said.
Data released since the last meeting has reinforced the narrative of a weakening economy in need of support.
The Office for National Statistics reported last week that GDP contracted 0.1% in the three months to October, undershooting forecasts for a 0.1% expansion.
Meanwhile, the latest labour-market report published on Tuesday suggested conditions continue to soften. The ONS said the number of employees on payrolls fell again, “reflecting subdued hiring activity.”
On Wednesday, UK data showed an outsized drop in headline inflation, with CPI easing to 3.2% y/y in November from 3.6% previously.
The combination of faltering growth and cooling inflation has led markets to price in a near-100% probability of a quarter-point cut in December, but only around a 25% chance of a follow-up move in January.
Raja noted that with individual MPC members now able to set out their preferred policy paths more clearly in the minutes, “we expect the overall guidance to strike a more neutral tone, with ‘the timing of further rate cuts dependent on the evolution of prices and wage growth’, as laid out in the Bank’s last statement.”
Economists said markets would focus on whether the December decision alters the balance of probabilities for further easing in 2026.
George Buckley of Nomura said, “Here, we will be paying closer attention to what the internal MPC camps say. Any indication that greater weight is being placed on the loosening labour market would be read as a dovish signal heading into the new year. Signals that rate cuts can remain on a ‘gradual’ path, provided disinflation continues, would also validate expectations of a roughly quarterly pace of easing.”