Bank of England Moves Toward a Cautious Rate Cut

The Bank of England is widely expected to cut interest rates by 25 basis points at its final meeting of the year, responding to faster-than-expected inflation easing and growing signs of economic weakness. Markets have largely priced in a move from 4% to 3.75%, which would mark the lowest rate since early 2023.

UK annual inflation fell to 3.2% in November from 3.6% in October, mainly due to easing price pressures in food and beverages, along with adjustments in alcohol and tobacco prices. At the same time, rising unemployment and slightly negative economic growth suggest that tight monetary policy is weighing on demand.

However, a fully dovish shift remains unlikely. Inflation is still well above the 2% target, and services inflation remains sticky, keeping policymakers cautious. As a result, this rate cut is expected to be framed as a measured adjustment rather than the start of an aggressive easing cycle. The Bank of England is likely to continue emphasizing a gradual, data-dependent approach while preserving policy flexibility.