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London, 6 November 2025 — The Bank of England kept the Bank Rate at 4.0 per cent at its meeting ending 5 November and signalled that inflation has peaked. The shift opens the way for rate cuts in December and marks an important moment for mortgages, gilt markets, and the wider UK economy.
In This Guide
Policy Decision And Signal
The Monetary Policy Committee voted 5 to 4 to hold the rate at 4.0 percent. Four members backed an immediate cut to 3.75 per cent. It was the closest vote in more than a year and showed how quickly the inflation backdrop is changing.
The November Monetary Policy Report noted that consumer prices have reached a turning point. The bank expects a gradual return to target and said that progress on disinflation could justify lower rates. The committee pointed to weaker hiring, reduced labour demand, and an unemployment rate near 4.8 per cent as signs that wage pressure is easing.
Credit conditions have also tightened. Bank lending to households and firms has slowed as earlier rate rises feed through. These factors reduce the risk that inflation will stay above target for long.
Why Cuts Are Now On The Table
The Bank of England’s shift toward possible easing reflects a clearer slowdown in both inflation and domestic demand. Recent data from official sources shows price pressures easing, wage growth cooling and energy costs stabilising. These changes have reduced the need for restrictive policy.
Inflation trends
ONS data shows CPI inflation at 3.8 percent in September, the same reading as in August and July. This is well below the peaks of recent years and confirms a clear cooling in price growth.
Bank projections indicate that CPI could fall toward 3 per cent in early 2026 before easing closer to the 2 per cent target. Lower energy bills, slower wage growth, and stable goods prices explain most of this trend. Household energy and core goods are expected to make the biggest contribution to disinflation.
Economic growth and labour market softness
The November report noted that the UK economy is operating below potential. Output growth has been weak for several quarters. Business surveys show softer demand in services and little momentum in manufacturing. October S&P Global PMI data pointed to slower activity across the private sector.
Labour market indicators have lost strength. Vacancies continue to fall, hiring plans have softened, and unemployment has edged higher. The bank views this as evidence that wage growth will continue to slow. With demand weakening and price pressures easing, the need for restrictive rates has faded.
This combination of softer growth, lower inflation, and weaker wages explains why the committee is preparing for a shift toward cuts. Any move will depend on incoming data and will be taken in small steps.
What It Means For Borrowers And Markets
The prospect of earlier rate cuts is already influencing pricing across mortgages, bonds, and currency markets. Shifts in gilt yields and interest-rate expectations are feeding through to borrowing costs for households and to portfolio decisions for institutional investors.
Households and mortgages
Expectations of early cuts have already influenced mortgage pricing. Lenders monitor market rates to set new deals, so a clear signal from the bank supports cheaper fixed and variable mortgages.
Households on variable rates have faced sharp increases over the past two years. A drop in Bank Rate would ease financial pressure and improve affordability for buyers. Short-term gilt yields have already fallen following the bank’s signal, and this feeds directly into the swap rates used to price mortgages.
Fixed income and gilt markets
Market data after the November meeting showed lower yields on medium- and long-dated gilts. Investors are positioning for the start of an easing cycle. When rates fall, the value of long-term bonds rises, which boosts demand for duration.
Pension schemes and asset managers may continue to increase exposure to longer maturities. Debt Management Office auctions have attracted strong demand across both conventional and index-linked gilts. If cuts begin in December or early 2026, the trend towards longer-dated bonds is likely to continue.
Currency and savings
Sterling weakened after the November decision as traders priced in earlier cuts. Currency performance is closely tied to relative interest rates. If other major central banks keep their rates higher for longer, sterling could remain under pressure.
Savings rates have stayed high during the tightening phase. A move into easing may slow the arrival of new top-paying products. Savings rates generally adjust more slowly than mortgage rates, but prolonged cuts would eventually push deposit returns lower.
Risks That Could Delay Rate Cuts
The bank stressed that policy is data-dependent. Several risks could slow or halt early easing.
Inflation resurgence
Energy prices, food costs and services inflation remain key risks. A rise in global energy markets would lift UK inflation again. Services inflation depends heavily on pay. If wage growth stops falling, inflation could remain above target. The bank flagged these issues as sources of uncertainty.
Fiscal policy developments
The upcoming fiscal statement from HM Treasury could shift the outlook. Higher spending or new tax measures may increase demand in the economy. If fiscal policy becomes more expansionary, the bank may need to keep rates unchanged for longer.
Global shocks
The UK is exposed to global trade routes and commodity markets. Supply disruptions, higher shipping costs or volatile fuel prices could raise inflation again. A weaker global economy could also influence capital flows and affect the timing of policy moves.
Timeline And Market Expectations
Market pricing after the meeting showed greater confidence in a December cut. The next Bank of England rate decision is scheduled for 18 December 2025.
The bank’s central forecast shows Bank Rate easing to around 3.9 percent by the end of 2026. This projection relies on inflation continuing to fall without interruption and is not a firm commitment.
FTSE performance will remain sensitive to rate expectations. Lower borrowing costs can support companies with high debt levels and may improve financing conditions across several sectors.
Next Data Releases That Matter
Several data releases will guide the Bank of England’s December decision. The Office for National Statistics will publish new labour market figures on unemployment, vacancies and pay. Updated CPI and core inflation data will show the latest movement in energy costs, goods prices and services inflation.
The next Monetary Policy Report, due at the December meeting, will include new forecasts for growth and inflation. Debt Management Office gilt auctions and changes in gilt yields will show how investors are reacting. New S&P Global PMI readings for services and manufacturing will indicate whether business activity is steady or slowing.
These updates will show if inflation is easing as expected and whether the labour market is becoming weaker.
The Bank of England is now moving out of the tightest stage of its policy cycle. Inflation has peaked, growth has slowed, and wage pressures are cooling. The committee is preparing for the first cut in Bank Rate since the tightening phase began, but any move will rely on firm evidence that disinflation is continuing and that economic conditions remain stable.
