Bank of England Cuts Interest Rate to 3.75% Amid Economic Slowdown

London – The Bank of England has reduced its main interest rate by 25 basis points to 3.75%, marking the lowest level since 2022. This decision aligns with market expectations as signs of economic slowdown and decreasing inflationary pressures emerge.

Five members of the Monetary Policy Committee voted for the cut, while four members preferred to keep rates unchanged, showing less inclination towards easing than the markets anticipated, prompting investors to reduce their bets on future rate cuts.

The bank indicated that monetary policy will remain constrained, but to a lesser degree, noting that any further easing will depend primarily on developments in inflation, wages, and growth.

Economic Pressures and Slowing Inflation

The rate cut decision comes amid:

• The annual inflation rate in the UK fell to 3.2% in November, the lowest level in eight months, and below the bank's forecast of 3.4%.

• GDP contraction for the second consecutive month in October.
• A continued slowdown in private sector wage growth.

Pound Sterling Remains Steady

Despite the decision, the Pound Sterling remained largely stable near $1.33, as markets had already absorbed the cut, with investors reassessing the trajectory of monetary policy for the coming year.

Current market pricing indicates about 62 basis points of expected cuts by the end of next year, compared to around 66 basis points before the decision.

UK Stocks Lack Clear Direction

In the stock market, the FTSE 100 index reduced its early gains, trading near stable levels, amid a decline in risk appetite following the Bank of England's less dovish decision than investors had hoped for.

In terms of stocks:

• Whitbread led gains with a rise of nearly 6% after an activist investor called for a review of the company's strategy.

• Shares of Rentokil Initial rose by 3.1% following an upgrade from Bank of America.

• Conversely, shares of:

  • Burberry Group dropped by 1.9%.

  • United Utilities fell by 1.5%.

  • Bunzl decreased by 1.3%.

• Meanwhile, shares of BP remained almost stable after announcing a new CEO.

Market Outlook

The market's reaction to the Bank of England's decision reflects a delicate balance between clear economic slowdown and gradual inflation decline, as monetary authorities attempt to avoid excessive easing that could reignite price pressures, making the interest rate path in 2026 more data-dependent.