Economists are predicting a festive financial boost for borrowers, with the Bank of England widely anticipated to cut interest rates this Thursday. The move comes after official data revealed a significant slowdown in inflation during November.
Inflation Data Paves the Way for Rate Reduction
The key driver behind the expected decision is the latest Consumer Prices Index (CPI) reading from the Office for National Statistics (ONS). The rate of inflation fell to 3.2% in November, down from 3.6% in October, marking an eight-month low. This drop was sharper than many financial analysts had forecast.
A major contributor to the easing of price pressures was a slowdown in food and drink inflation, which decreased to 4.2% from 4.9%. Prices for alcohol and tobacco also showed a welcome moderation.
A "Festive Gift" for Borrowers
Financial experts now believe this data gives the Bank's Monetary Policy Committee (MPC) the confidence to act at its final meeting of the year on 18 December. The consensus forecast is for a reduction in the base rate from 4% to 3.75%.
This would bring borrowing costs to their lowest level since the beginning of February 2023. Danni Hewson, head of financial analysis at AJ Bell, described the inflation figures as "the final piece in the puzzle" which will enable rate-setters "to deliver their own festive gift to borrowers."
James Smith, a developed markets economist at ING, stated that the sharp November drop effectively "green lights" a December cut. "Christmas has come early for the doves at the Bank of England," he remarked.
Looking Ahead to 2026
While the imminent cut is seen as highly likely, analysts caution that the path for interest rates in the new year remains uncertain. The Bank's primary mandate is to return inflation sustainably to its 2% target, a goal not yet achieved.
Ms Hewson added a note of realism, pointing out that markets do not expect the Bank to cut rates more than once or twice over the next year. Borrowers hoping for a swift return to the ultra-low rates of the past decade will need to adjust their expectations.
Mr Smith from ING is forecasting further cuts in February and April 2026, predicting that headline inflation could fall "pretty close to 2% by May." He did warn of a potential slight uptick in December's figures, partly due to seasonal rises in air fares.
The MPC's decision will also consider other signs of a cooling economy, including:
- Rising unemployment figures
- Slower growth in wages
- Stagnant overall economic growth
Thursday's announcement will be closely watched by homeowners, businesses, and investors, marking a potential turning point in the UK's monetary policy after a prolonged period of high rates aimed at taming inflation.
