Here’s a fully paraphrased version of your Bank of England interest rate article in British English, written to be natural, clear, and original:
The Bank of England reduced its official interest rate to 3.75% from 4% in its final policy decision of 2025, bringing borrowing costs to their lowest level in nearly three years. However, the move revealed significant divisions among policymakers regarding the prospect of further easing.
The Monetary Policy Committee (MPC) voted five to four in favour of the cut, leaving both borrowers and markets uncertain over whether 2026 will see additional reductions or a more cautious approach.
In its statement, the central bank emphasised that any further rate cuts would depend on how inflation develops. It noted that policy had already become considerably less restrictive. “The restrictiveness of policy has fallen as bank rate has been reduced by 150 basis points since August 2024,” the MPC said. “On the basis of current evidence, the bank rate is likely to continue a gradual downward trajectory, but decisions around further easing will require closer judgment.”
Money markets are signalling a potential decline to 3.5% by April, with an estimated 78% chance of a cut to 3.25% by November. The December decision marked the sixth reduction since August 2024, lowering the bank rate from 5.25% to 3.75%.
Economists largely expect further easing in 2026, though opinions differ on the pace and extent of any cuts. Sanjay Raja, chief UK economist at Deutsche Bank, said additional reductions are likely next year. He highlighted that forward-looking measures of price pressures—including firms’ inflation expectations, wage trends, and the labour market—will be key determinants.
“Continued weakness in labour market participation could encourage a more dovish approach from the MPC in 2026,” Raja added.
Neil Wilson, a UK investor strategist at Saxo, suggested that inflation is falling while the economy remains fragile. He anticipates further cuts in February and April, potentially reducing the bank rate to around 3% by the end of the easing cycle.
Some economists are more cautious. Sylvain Broyer of S&P Global Ratings warned that with real wages still rising faster than productivity, underlying price pressures may limit the scope for cuts. He expects only one additional reduction before spring 2026.
Capital Economics predicts the bank rate could fall to 3% next year, below the 3.5% currently priced into markets. The firm expects inflation to return to the Bank of England’s 2% target by the end of 2026, faster than many anticipate.
Sonali Punhani, UK economist at Bank of America, expects quarterly cuts in 2026, potentially in March or June, with the possibility of April or July reaching 3.25%. She noted that fiscal tightening and policies aimed at reducing energy bills provide room for gradual easing. “Lower energy costs are a one-off factor, but they can reduce inflation and wage expectations, helping limit second-round effects,” she explained.
Simon Dangoor, deputy chief investment officer of fixed income at Goldman Sachs Asset Management, said that weak economic data could prompt larger cuts than markets expect. He highlighted signs of deterioration in the labour market and forecasted inflation would remain manageable through 2026, suggesting the MPC may take a more dovish stance. Goldman expects rates to bottom out at 3% and hold there through 2026 and 2027.
ING anticipates two cuts in the first half of 2026, bringing the bank rate to 3.25%. James Smith, ING’s UK economist, said most MPC members still view further reductions as likely. He expects a small chance of a February cut and noted that headline CPI could be close to, or slightly below, 2% by May.
The downward path for interest rates comes amid signs of strain in the UK economy. Unemployment rose to a four-year high of 5.1%, while private sector wage growth slowed to its weakest pace since November 2020 over the three months to October.
Consumer price inflation fell to 3.2% in November from 3.6% in October, exceeding expectations and reinforcing the view that inflation is on a declining trend after rising earlier in 2025.
Danni Hewson, head of financial analysis at AJ Bell, warned that uncertainty remains high for 2026. She noted that markets are not anticipating more than one or two rate cuts next year, meaning borrowers hoping for a return to historically low levels will need to adjust expectations.
Interest rate changes directly affect millions of households in the UK through mortgage costs, credit cards, and savings returns. While lower bank rates tend to reduce mortgage costs, lenders set their own rates, meaning changes can occur ahead of or lag behind the official rate. Savings rates generally follow the central bank’s movements, so predicted rate cuts could also lead to lower returns for savers.
The next Bank of England MPC decisions are scheduled for 5 February, 19 March, and 30 April 2026, offering further guidance on the trajectory of interest rates in the new year.
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