The Bank of England cut interest rates by a quarter point on Wednesday after a closely split vote, citing easing inflation pressures and signs of slack emerging in the labour market even as price growth remains above target.
The Monetary Policy Committee voted 5–4 to lower the bank rate to 3.75%, with four members preferring to keep rates unchanged at 4%. Annual inflation has fallen to 3.2%, while economic growth has remained subdued, prompting policymakers to judge that restrictive policy settings are increasingly weighing on demand.
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The MPC said pay growth and services inflation have continued to moderate, reinforcing confidence that inflation will return to the 2% target more quickly in the near term. While persistent inflation risks have diminished, the Committee warned that weaker demand now poses a growing risk to medium-term inflation.
Since August 2024, the BoE has reduced rates by a cumulative 150 basis points. Policymakers reiterated that further easing is likely to be gradual, stressing that future decisions will be finely balanced and guided by incoming data on inflation, wages and activity.
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The decision comes as major economies show mixed signals heading into 2026, with slowing price pressures offset by uneven growth prospects, keeping central banks cautious about the pace of policy normalisation.
