The Bank of England lowered its benchmark Bank Rate by 0.25 percentage point on Thursday, Dec. 18, 2025, taking it from 4% to 3.75%. The decision was the first reduction in roughly four months, following a period in which policymakers had kept borrowing costs unchanged after a cut in August 2025.
The rate is now at its lowest level since February 2023, according to the central bank’s published rate history. The move comes as officials weigh signs that price pressures are easing against concerns that inflation remains above the BoE’s 2% target.
Close Vote Highlights Ongoing Inflation Concerns
The Monetary Policy Committee (MPC) voted 5-4 in favor of the quarter-point cut, underscoring a still-fractured assessment of how quickly inflation is likely to return to target and stay there. Governor Andrew Bailey said policymakers were watching the labor market closely and warned that officials should remain “vigilant” as job conditions soften.
According to Reuters, the officials backing the reduction included Bailey, Deputy Governors Sarah Breeden and Dave Ramsden, and external members Swati Dhingra and Alan Taylor. The four who preferred to keep rates unchanged included Deputy Governor Clare Lombardelli and Chief Economist Huw Pill, along with two other committee members, reflecting concerns that parts of domestic inflation could prove persistent.
In its public explanation of the decision, the BoE said inflation has retreated sharply from its peak of above 10% around three years ago, while stressing that the path back to 2% is not guaranteed and will depend on indicators such as pay growth and services inflation. The bank also said it expects rates to “fall gradually further,” subject to incoming data.
Data Show Cooling Prices And A Weaker Jobs Picture
The immediate catalyst for the cut was a fresh inflation report from the Office for National Statistics (ONS). The ONS said consumer price inflation (CPI) slowed to 3.2% in the 12 months to November 2025, down from 3.6% in the year to October. A broader gauge, CPIH (which includes owner-occupiers’ housing costs), eased to 3.5% from 3.8% over the same period.
On a monthly basis, CPI fell 0.2% in November, compared with a 0.1% increase a year earlier; CPIH fell 0.1% month-on-month. The BoE had expected inflation of about 3.4% for the latest reading, and the undershoot helped create room to support a sluggish economy, the AP report said.
Separate labor-market data also pointed to softer conditions. The ONS estimated the unemployment rate at 5.1% in August to October 2025, the highest since January 2021, while other recent releases have shown falling vacancies.
While inflation has eased, the UK’s price growth remains elevated compared with some peers. The AP report noted an inflation rate of 2.1% in November across the 20 countries that use the euro, and 3.0% in the United States in September, the latest data available amid a government shutdown.
What The Change Means For Borrowers And The Outlook
Lower policy rates typically reduce the cost of borrowing over time, influencing everything from business loans to household credit and variable-rate mortgages. The BoE and other central banks have argued that easing financial conditions can encourage consumer spending and private investment, which can help lift activity when growth is weak. At the same time, easier credit can add to demand and complicate efforts to bring inflation fully back to target.
The BoE has been cutting rates since August 2024, when it began easing after a period of aggressive tightening aimed at tamping down inflation. The bank says it has reduced rates six times since that point, and officials have emphasized that future decisions will remain data-dependent rather than pre-set.
Market and analyst attention is now turning to the next MPC decision, which the BoE has scheduled for 5 February 2026. Between now and then, policymakers are expected to scrutinize inflation reports, wage and services-price measures, and signals from the labor market for evidence that disinflation is durable.
