The Bank of England’s (BoE) next meeting to determine interest rates is tomorrow (18 December), and all eyes will be on the Monetary Policy Committee (MPC) and whether its members opt to continue lowering rates.
The base rate – currently at 4.0 per cent after being cut three times this year – impacts business, consumers and taxpayers through everything from mortgages to loans and savings, so what do experts foresee, both this week and beyond?
Will interest rates be cut?
After a hugely divisive vote in November, where analysts were split on their expected outcomes and the eventual MPC vote was 5-4 in favour of a hold, this time it’s a very different story.
Almost everybody expects a cut to interest rates, as the cautious approach from the BoE meant they gave themselves until after Rachel Reeves’s Budget to decide the next move.
Now that the Budget fallout has been absorbed and further data from November has come through, everything points to a base rate cut down to 3.75 per cent.
Perhaps most importantly, this week’s inflation data coming in lower than expected at 3.2 per cent means the BoE can have confidence that a rate cut is well-timed and necessary.
Emma Wall, chief investment strategist at Hargreaves Lansdown, says “a rate cut tomorrow is all but guaranteed, though markets should not expect the voting to be unanimous”, while AJ Bell’s head of financial analysis Danni Hewson added “there are signs that we’ve scaled the sneaky second peak” of inflation – which also points to a rate cut.
Barclays analyst Jack Meaning wrote in a research note that a cut was also expected, “albeit with a cautious tone”.
In other words, most analysts and economists are expecting another split vote with some of the MPC’s more cautious members wanting to stay put while inflation is still well above 2 per cent target, but overall a cut will win the day.
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But interest rate decisions take into account multiple factors over long periods of time, as well as expectations about what lies ahead – and this year has been tricky in both regards.
As well as the domestic situation of higher-for-longer inflation, we’ve had more uncertainty in 2025 as a result of Donald Trump’s tariffs, businesses dealing with higher labour costs coming into force, and escalated geopolitical tensions after Israel’s strike on Iran led to a brief oil-price scare.
It’s worth remembering that with mortgages in particular, many products are priced using future expectations of the interest rate (swap rates), so changes in that market can already be accounted for.
For savers, though, whether or not an immediate cut to variable rates is coming, it’s always worth checking the best offers on the market to make sure your money is earning as much as it can for you.
Influential factors
The MPC has nine members, and their votes decide whether the base rate is cut, raised, or kept the same.
Among the elements MPC members will have been looking at are job and wages data, the level of inflation across the UK, and economic growth.
Each of those has come in for November over the past week and at face value, each says cut, cut, cut will be the outcome: rising unemployment, lowering inflation and no economic growth at all – in fact UK GDP fell 0.1 per cent in the three months to October.
Higher inflation is a reason to keep interest rates up, as it can discourage businesses from investing in new projects or hiring – things that in turn raise earnings and spending power. Conversely, fewer jobs and lower wages means less spending power and lower demand, which helps to stem further price rises.
Recent key data has shown salary growth slowing and unemployment rising throughout the year. These are factors that can see interest rates decrease, while there are also external factors that can affect the UK, which the government and Bank of England can have little or no control over.
What about into 2026?
The further into the future we look, the more murky the picture is – much will depend on how the economy reacts to November’s Budget.
Barclays are still expecting the next cut in March rather than February, unless economic conditions significantly improve.
“There are still massive question marks about what 2026 will bring and markets don’t expect the Bank of England to cut interest rates more than once or twice over the next year, so borrowers hoping to see a return to the ultra-low levels many people had become used to will have to adapt,” added AJ Bell’s Ms Hewson.
But the Trades Union Congress want the BoE to go much further, saying it has “been too cautious this year, and inflation is already lower than they expected only last month. So an interest rate cut this week must be the start of a sequence of reductions over the months ahead. It’s long overdue and it’s the shot in the arm that the economy needs.”
The next MPC vote dates will be on 5 February, 19 March and 30 April.
