Bank of England expected to cut interest rates to the lowest level in almost three years

Edge England is set to slash interest rates to its lowest level in almost three years, economists believe, giving borrowers “celebratory news”.

of the bank monetary policy committee (MPC) is widely expected to reduce interest rates from 4% to 3.75% on Thursday.

This will bring borrowing costs down to their lowest rates since early February 2023.

Policymakers’ next decision, which will be the last of the year, will come as economic data shows signs of UK inflation slowing.

Consumer price index (CPI) inflation fell to a four-month low of 3.6% in October after gas and electricity prices rose at a slower rate than last year.

Economists believe falling inflation, along with other signs of the economy cooling, will encourage policymakers to opt for a rate cut next week.

Laith Khalaf, head of investment analysis at AJ Bell, said the rate cut would be “celebratory news for all types of borrowers”.

He added: “The Bank of England will be focused on achieving its 2% inflation target in the UK, and for now that means easing policy.

“But we should not expect a huge rate cut next year.

“Previous monetary easing may still be working through the system and greasing the wheels, but fresh stimulus may be in short supply throughout 2026.”

The next decision also comes after last month’s autumn BudgetWhich some economists said was less likely to reduce inflation than they expected.

There was speculation ahead of the Budget that the government might choose to raise income tax rates, which could put pressure on inflation – but that did not happen.

Investec economist Philip Shaw said the tax measures announced by the Chancellor Rachel Reeves “They do not start cutting until 2028-29 and hence have relatively little importance in the current interest rate debate”.

“That said, we note that the overall fiscal stance remains relevant given the past budget measures that have been weighing on the economy, particularly the continued blockage of the income tax cap,” he said.

Andrew Goodwin, chief UK economist at Oxford Economics, said: “A rate cut is likely, although it is a closer call than the market thinks.

“The committee is deeply divided and four of the nine officials are unlikely to vote for the cuts.

He said the vote would depend “entirely” on Bank Governor Andrew Bailey, who has indicated he thinks the inflation outlook is improving.

The US Federal Reserve voted this week to cut interest rates to the lowest level since 2002, but its chairman jerome powell Said that the central bank will carefully assess the economic data in the coming months.