Bank of England to cut interest rates in December and again in Q1 2026

By Anant Chandak

BENGALURU (Reuters) -The Bank of England will cut interest rates in December and again early next year as inflation cools over coming months, according to a majority of economists in a Reuters poll who last month expected borrowing costs to remain unchanged for the remainder of this year.

Next month's meeting will follow British Finance Minister Rachel Reeves' Autumn Budget on November 26 where she is no longer expected to raise income tax but will make up an expected shortfall through smaller tax rises from other sources.

The Monetary Policy Committee voted 5-4 to leave rates unchanged earlier this month, with BoE Governor Andrew Bailey casting the deciding vote, wanting to wait for evidence of declining inflation before committing to a cut. 

Nearly 80% of economists, 48 of 61, expect the BoE will cut Bank Rate by 25 basis points to 3.75% on December 18, according to a Reuters poll taken November 13-18. The rest forecast no move.

That compares with 54% who expected unchanged rates for the remainder of the year in an October survey. Around that proportion now expect a follow-up cut to 3.50% in Q1 2026. 

"We see a December rate cut as the default action, absent any wildly hawkish surprises in the next two inflation prints," said Gabriella Willis, UK economist at Santander CIB.

"We expect Governor Bailey to remain the swing voter. The October and November inflation prints, alongside signs of a softening jobs market, will be the final green light to a cut." 

Interest rate futures have almost completely priced in a December cut. 

Inflation has been stuck at 3.8%, nearly double the BoE's 2% target, since July. Data due to be released on Wednesday are likely to show a cooling to 3.6% in October. 

Median forecasts predicted inflation averaging 3.0% and 2.5%, respectively, in the following two quarters. 

Growth is expected to average 1.4% this year, slowing to 1.1% next year, according to poll medians.

"We are still expecting the Budget to be disinflationary, but less so than our original base case which included a larger hit to demand from lifting income tax," said Willis. 

(Other stories from the Reuters global economic poll)

(Reporting by Anant ChandakPolling by Sarupya Ganguly and Debrah GomesEditing by Ross Finley and Frances Kerry)