UK interest rates: will the MPC lower rates?

The Bank of England base rate over time

The base rate has gradually fallen from a high of 5.25% in 2024 – it has been cut five times since then and currently sits at 4%.

The base rate started climbing in December 2021, from 0.1%, as the Bank of England looked to cool runaway inflation that soared in part due to a rise in global demand for goods and higher energy prices.

What is the Monetary Policy Committee expected to announce?

All the signs point to a base rate cut tomorrow. In a research note published last week, one of the ‘big four’ banks HSBC said it expects a cut by 25 basis points to 3.75%.

This, HSBC said, was in line with market expectations, which is pricing in a 93% chance of a cut.

With labour market data showing unemployment on the rise and inflation data from today (17 December) showing price rises have slowed, this suggests a base rate cut is even more likely.

Alice Haine, personal finance analyst at online investment platform Bestinvest by Evelyn Partners, said: “The headline rate of inflation plunged to 3.2% in the 12 months to November, coming in lower than expected, raising the likelihood that the Bank of England will press ahead with a sixth interest rate cut tomorrow and deliver some much-needed respite for Budget-battered Britons ahead of Christmas.”

Why does the Bank of England review interest rates?

The Bank of England (BoE) reviews its base rate, eight times a year, as a lever to control inflation but also to stimulate growth in the UK economy.

The government sets an inflation target of 2% for the bank to meet. This is seen as a healthy rate of price rises for an economy.

The theory is that increasing interest rates encourages people to save money and not spend it, which in turn slows inflation.

Conversely, lowering interest rates reduces the cost of borrowing and can encourage people to spend their money rather than save it, which can stimulate growth in the economy.

When is the MPC’s interest rates decision announced?

The MPC will confirm its UK interest rate decision at midday (12pm) tomorrow (18 December).

Stay with us for live reaction to the decision and what it may mean for your finances.

Bank of England’s MPC digesting economic data

Good afternoon, and welcome to our live coverage ahead of tomorrow’s announcement from the Monetary Policy Committee (MPC) on whether it will raise, hold or cut UK interest rates.

The meeting follows a string of macroeconomic news for the UK.

Data published by the Office for National Statistics (ONS) today (17 December) revealed that inflation as measured by the Consumer Prices Index (CPI) slowed to 3.2% in the 12 months to November. This is down from 3.6% in the 12 months to October.

Labour market figures released yesterday (16 December) showed UK unemployment rose to an almost five-year high of 5.1% in the three months to October.

The latest GDP figures from the ONS show the UK economy unexpectedly shrank in the three months to October, falling by 0.1%.

All of this will be keenly reviewed by MPC, who will then decide on where to set interest rates. A stagnant economy, rising unemployment and slowing inflation all suggest a base rate cut is on the way, despite inflation still running ahead of the BoE’s 2% target.

Follow our preview and reaction coverage of the MPC’s decision in this live report.