IoD press release  MPC reduces interest rates to lowest level since January 2023

“The MPC voted as widely expected to reduce rates by 25 basis points to 3.75% – the lowest they’ve been since January 2023. The vote split was likewise as expected, with the Governor the swing voter, swayed by multiple data points – activity, unemployment, wages and inflation – all giving the all-clear for gently easing back on monetary constraints.

“Interestingly, the Bank of England judge that the Budget on balance added to overall inflationary pressures, with the short-term 0.5% point reduction in headline inflation in 2026 more than offset by fiscal loosening over the next couple of years, leading to inflation marginally higher in 2027 and 2028. But a weaker outlook for gas and fuel prices, along with some easing in inflation expectations, pay growth, the broader labour market, demand as a whole and inflation itself gave enough members of the MPC comfort to lower rates. There’s still residual concern that wage growth and services both remain elevated, but counterbalanced by the reality that business and consumer confidence remains depressed, injecting caution into spending and therefore demand.

“Looking into next year, inflation should keep tracking down. Overall risks to the inflationary outlook remain balanced, suggesting the MPC will continue to be cautious in lowering rates further – particularly when inflation has only been in the target range for 24% of the past four years. But it’s notable that the Bank has revised their Q4 GDP expectation to zero, quite a change from the 0.3% growth they expected only 6 weeks ago, and a weak springboard for 2026. If confidence doesn’t lift, the economy might need a bit more monetary support.”