Last updated on December 25, 2025
LONDON: The Bank of England (BoE) is expected to cut interest rates for the fifth time in 12 months on Thursday, in response to a weakening job market, even as stubborn inflation continues to cloud the central bank’s path forward.
Markets anticipate the Bank Rate will drop from 4.25% to 4.0%, a decision that will highlight the growing policy divide within the Monetary Policy Committee (MPC). While some members are urging deeper cuts to support employment, others warn that persistent inflation still poses a threat to economic stability.
Thursday’s decision will be announced at 1100 GMT, followed by a press conference with Governor Andrew Bailey and senior BoE officials at 1130 GMT.
Balancing Act Between Growth and Inflation
The BoE’s challenge has become more complex due to a tax hike on employers and fallout from U.S. President Donald Trump’s trade policies, which have contributed to a sluggish UK job market. Yet inflation remains above the central bank’s 2% target, with some economists forecasting it could reach 4% in the coming months.
According to Pantheon Macroeconomics, today’s expected cut may be the last in the near term, given inflationary pressures. This would frustrate the UK government’s aim to reignite economic growth under Finance Minister Rachel Reeves and Prime Minister Keir Starmer.
Conversely, analysts at Evercore believe worsening labour market conditions could force the BoE to accelerate rate cuts later this year.
Market pricing currently suggests another cut in November, but only one or two more reductions are expected in 2026, potentially keeping the Bank Rate at 3.25% to 3.5%—still above the euro zone’s benchmark rate of 2%.
Public Expectations, Wage Pressures Weigh Heavily
Despite the BoE’s forecast that inflation will only return to target by early 2027, public sentiment remains sceptical, particularly among workers bargaining for higher wages. This could entrench wage-price dynamics, making it harder to bring inflation under control.
Wage growth in Britain currently hovers around 5%, well above the 3% level the BoE considers consistent with its inflation goals. Unlike the European Central Bank, which has already cut rates eight times since mid-2024, the BoE remains more cautious.
“If I’m a worker and I’m bargaining for a wage, am I really going to believe that inflation is going to come back to 2%?” asked Stephen Millard, deputy director at the National Institute of Economic and Social Research.
In addition to the interest rate decision, investors will also be watching closely for updates on the BoE’s quantitative tightening programme—particularly its plans to reduce holdings of government bonds. A decision on the pace of those sales is expected in September, and could further influence gilt markets.
Disclaimer: This article is adapted from reporting by Reuters. While The Ledger Asia has provided additional context for our regional readers, we acknowledge that all economic forecasts and market expectations remain subject to change.
