Chancellor Rachel Reeves has seized upon the Bank of England’s latest interest rate cut as a major victory for the Labour government. With the base rate now at 3.75%, Reeves highlighted that the pace of cuts is the fastest seen in nearly two decades. The narrative from the Treasury is one of turning a corner, offering hope to families struggling with high mortgage payments and loans.
The Bank’s decision was supported by data showing inflation falling to 3.2%, aided by cheaper food costs. The MPC’s 5-4 vote in favor of the cut suggests a shift in focus toward supporting growth, as the Bank now believes the worst of the inflation crisis is behind us. They project inflation will drift closer to the 2% target in the first quarter of the new year.
However, the celebratory tone is dampened by warnings from the Bank regarding government policy. The committee noted that the recent increase in employer national insurance contributions had acted as a shock to the system, restraining the fall of inflation and potentially slowing hiring. This puts the Chancellor in a tricky position of welcoming the rate cut while defending the fiscal policies that may be complicating the Bank’s job.
Opposition to the cut came from the Bank’s own Chief Economist, Clare Lombardelli, who warned of “elevated wage growth.” She and three others voted to hold rates, arguing that underlying price pressures are still too strong. This internal disagreement suggests that the path to lower rates in 2026 will be bumpy and contested.
For the public, the immediate impact is a slight easing of financial pressure. But with independent forecasters like the IMF predicting that the UK will still suffer higher inflation than other major economies, the “cost of living” crisis is far from over. The government hopes this cut is the first of many that will eventually restore economic dynamism.