The Signs Suggest A Small Drop In Interest Rates May Be On The Cards

1st December 2025

Bank of England (BoE) recently left the base rate at 4%, but the vote was very close 5-4 with some members already favouring a cut.

Inflation has been easing and headline inflation has come down in recent months (though it's still above target), making a reduction more plausible without risking a big overshoot.

The government's recent Autumn Budget 2025 introduced a number of measures that are expected to weigh on demand and help reduce inflation — which gives the BoE more room to ease monetary policy.

Analysts at e.g. Vanguard see a cut in December (to about 3.75 %) as likely, followed by more reductions in 2026 — possibly reaching ~3.25 % by mid-year.

What to watch
Inflation, though down, remains above the BoE's 2% target and could become sticky — especially if "administered prices" (like regulated energy, utilities, transport) rise again. That could make the BoE more cautious.

The fallout from the Budget is still being assessed and some measures (like tax changes) could have complex effects on demand and inflation; if those push prices up, the BoE might hold off on a cut.

Economic growth remains weak, and labour-market softness is only partial; the BoE may wait for clearer evidence that inflation is sustainably falling and economic conditions warrant loosening.

What seems most likely — and what it means
At the moment, the balance of evidence points toward a moderate rate cut — many expect a 25 basis-point cut (from 4.00% to 3.75%) at the December BoE meeting, with potential for further gradual cuts through 2026.

For borrowers (mortgages, loans), that would likely translate into lower borrowing costs over time though any major drop seems unlikely in the very short term unless inflation falls sharply.