The Bank of England lowers its rate to 3.75%, markets temper their expectations

The decision to lower the interest rate has exposed divisions within the Monetary Policy Committee. Five members voted in favor of the cut, while four advocated for maintaining the current rate. This outcome was seen as less accommodative than the markets had anticipated, prompting operators to revise their expectations for further rate reductions downward. In its statement, the Bank of England indicated that any future easing would be strictly contingent on the evolution of inflation prospects. It also emphasized that the degree of monetary policy restriction has begun to decrease. Recent macroeconomic data supports this cautious approach. Inflation slowed to 3.2% in November, marking its lowest level in eight months and falling below the central bank's forecast of 3.4%. Additionally, the GDP contracted for the second consecutive month in October, while private sector wage growth continued to decelerate. The Bank of England now anticipates a return of inflation close to the 2% target by next spring, following a sharper-than-expected decline in consumer prices. While current indicators suggest a continuation of easing borrowing costs into 2026, the institution stresses a gradual approach. "We still believe that rates are on a gradual downward trajectory," stated the governor. "However, with each cut, it becomes more challenging to determine how far we will go."