The Bank of England will cut interest rates by a quarter point to 3.75% on December 18, according to all economists polled by Reuters, with evidence showing still-elevated inflation drifting downwards convincing most that a tightly split policy committee will flip towards easing.
Governor Andrew Bailey was among those voting on the nine-member Monetary Policy Committee in November to keep Bank Rate unchanged at 4.0%, but hinted that positive news on inflation moving closer to the 2% target might change his mind.
British inflation fell in October for the first time since May, to 3.6% from 3.8%, in line with the central bank’s expectations, and November data due next week could show a further drift downwards.
That, alongside a tax-raising budget from British finance minister Rachel Reeves since the last meeting and news of a slight rise in unemployment, will probably be enough to convince at least a slim majority of five MPC members to vote for a cut to 3.75% on December 18.
NO CONSENSUS ON RATE PATH BEYOND MARCH
All 64 economists in a Reuters poll taken December 5-11 expected that outcome, up from a near-80% majority last month. A decision to change rates outside of the quarterly forecasting schedule would be the MPC’s first since June 2023.
Around two-thirds of economists polled expected a follow-up cut in Bank Rate to 3.50% by end-March.
“A December cut looks pretty much nailed on. There’s a fair debate about the final cut to 3.5%, when and whether that happens. For us it’s a base case,” said James Rossiter, head of global macro strategy at TD Securities.
“That said, if the economy and the labour market continue to soften rapidly and inflation eases away a bit next year, then I can start to see a scenario… where the Bank of England has to cut closer to 3%,” Rossiter said.
There is no majority among economists for any further cuts, even though the median forecast shows Bank Rate bottoming at 3.25% in the third quarter of 2026.
A BoE rate cut on December 18 would follow the U.S. Federal Reserve’s decision on Wednesday to cut its federal funds rate by a quarter point.
Economists at HSBC recently changed their December forecast to a cut, in part because of strong expectations built into financial markets that the BoE has done nothing to dislodge.
“While the BoE isn’t averse to surprising the market in general, in our view the last thing the sterling rate market needs right now is the BoE adding to a sense of confusion. Governor Bailey will be aware of this,” noted Simon Wells, chief European economist at HSBC.
INFLATION PATH
Inflation was expected to slow to 3.1% next quarter and 2.4% in the second quarter of 2026, roughly similar to the previous poll.
Economic growth was forecast to average 1.4% this year and 1.1% next, unchanged from last month’s poll.
A separate Reuters poll of 19 property market experts also published on Thursday showed the average British home price was expected to rise 2.0% this year and 3.8% in 2026, less than the respective 2.6% and 3.1% median forecasts in a survey three months ago.
Asked to identify the biggest barriers to homeownership for first-time buyers, 13 of 14 housing market experts chose difficulty in saving up for a deposit.
Ray Boulger, of mortgage broker John Charcol, said “there is still scope for mortgage rates to fall a bit further,” based on expectations for further cuts in Bank Rate.
(Other stories from the Reuters global economic poll)
(Reporting by Anant Chandak）
