As Economists predicted, the Bank of England (BoE) cut interest rates in December due to a weak economic performance.
The BoE’s monetary policy committee made its final decision of the year on Thursday, 18 December. This meeting was for the much-anticipated rate cut to 3.75%. This rate cut was considered prudent due to the economy shrinking by 0.1% in both consecutive months of September & October 2025.
Deputy Chief Economist Ruth Gregory of Capital Economist said that the 0.1% month-over-month contraction in the economy in October was especially disappointing. This was so given the increase in manufacturing output, which rebounded after September’s cyber-attack-induced hit. It is a further rationale for the BoE rate cut on Thursday, 18 December.
Economics director Suren Thiru of ICAEW was of the view that a pre-Christmas rate cut was ‘nailed on’. Thiru went on to add that the figures confirm an off-colour October for the UK economy. This was so with pre-Budget worries paralysing activity across key sectors. Also, this was despite a boost to manufacturing from Jaguar Land Rover’s return to production.
This dismissal outturn may have been followed by a similarly turbulent November. This was so with the damage to business and consumer confidence from the frenzied speculation ahead of the Budget. It was likely to have frozen wider economic activity.
The aftereffects of the Budget may signify that the UK’s economic prospects are poorer over the near term. It is expected to move with the growing tax burden and a weakening jobs market. It’s likely to keep growth notably lower than the OBR expects.
These downbeat figures are likely to further fuel fears amongst rate-setters over the health of the UK economy. A December policy loosening looks nailed on. This was particularly so, given the likely deflationary impact of the Budget.
Paul Nowak, TUC’s general secretary, urged the BoE to assist families & businesses with a rate cut, with Nowak being of the view that;
Bringing the UK economy back on track after 14 years of Tory chaos was never going to be a straightforward task. Nowak added that a volatile international context is not making this task any easier.
