The decision comes after the Office for National Statistics reported that inflation fell to 3.2 per cent in November, down from 3.6 per cent the previous month, significantly below forecasts from both the Bank of England and City economists. Measures introduced by Chancellor Rachel Reeves are also expected to shave up to 0.5 percentage points off inflation, reinforcing expectations of a rate cut.
Since the Labour government took office in July last year, interest rates have fallen five times from a peak of 5.25 per cent. Financial markets currently assign a 90 per cent probability to Thursday’s reduction.
The weakening UK economy is also influencing the Bank’s decision. GDP unexpectedly contracted by 0.1 per cent in October, while unemployment rose to 5.1 per cent, the highest in nearly five years. Private sector wage growth slowed to 3.5 per cent from 3.9 per cent, marking its lowest level since the pandemic.
Analysts argue that the latest economic data, coupled with policy measures, point toward further easing. Goldman Sachs said, “Indicators suggest continued labour market weakening. While budget measures may boost growth slightly, they are expected to lower inflation next year, making a rate cut highly likely.” Deutsche Bank’s Sanjay Raja added that Governor Andrew Bailey is likely to see enough evidence of disinflation to support the move. BNP Paribas echoed this view, noting that recent data and the autumn budget are “supportive of further easing.”
Globally, central banks are following a similar trend. Earlier this month, the US Federal Reserve lowered rates by a quarter point to a range of 3.5–3.75 per cent, and the European Central Bank is set to announce its final rate decision of the year on Thursday.
