Bank of England plans to lower interest rates in December and again in early 2026 – poll

BENGALURU, Nov 18

A recent Reuters poll indicated that most economists anticipate a steady borrowing rate for the remainder of this year, as noted by the Bank of England on Tuesday. They expect interest rates might be lowered in December and early next year, coinciding with a projected decline in inflation.

The upcoming meeting follows UK Chancellor of the Exchequer Rachel Reeves’ Autumn Budget on November 26. She doesn’t plan to increase income tax but will likely compensate for the deficit with minor tax hikes in other areas.

This month, the Monetary Policy Committee decided to maintain interest rates, with a close vote of 5-4. Governor Andrew Bailey, who cast the deciding vote, expressed a desire to first see evidence of decreasing inflation before committing to any rate cuts.

According to the Reuters poll conducted between November 13-18, almost 80% of the economists—48 out of 61—forecast a 25 basis point reduction to 3.75% on December 18. I mean, I’m not really looking for any drastic changes for the time being.

Interestingly, 54% of participants in an earlier October survey thought interest rates would stay unchanged by year-end. For context, a further drop to 3.50% is anticipated in the first quarter of 2026.

“Unless we see a significant hawkish surprise in the next two inflation updates, a rate cut in December feels like the most likely scenario,” said Gabriella Willis, a UK economist from Santander CIB.

She continued, “We expect Governor Bailey to keep a flexible stance. Trends in inflation for October and November, along with signs of a softening labor market, should give the final go-ahead for rate reductions.”

Market expectations suggest that a December rate cut is nearly fully accounted for in interest rate futures.

Inflation has remained at 3.8% since July, nearly twice the BoE’s target of 2%. However, forthcoming data, expected Wednesday, could show it decrease to 3.6% for October.

The median forecast predicts inflation will average 3.0% and 2.5% for the next two quarters, respectively.

Additionally, economic growth is projected to average 1.4% this year, slowing down to 1.1% next year based on the median poll results.

Willis mentioned, “We still consider the Budget to be disinflationary, but not to the extent we initially anticipated, which factored in a more substantial demand impact from income tax increases.”