The Bank of England has lowered interest rates to 3.75%, but the decision has exposed a significant rift among the UK’s top economic policymakers. In a nail-biting 5-4 vote, the Monetary Policy Committee (MPC) narrowly agreed to the quarter-point reduction. This division highlights the extreme uncertainty currently plaguing the British economy as it navigates the post-inflation landscape.
The five members voting for the cut argued that high borrowing costs were strangling the economy at a time when inflation is finally cooling. With the headline inflation rate dropping to 3.2% in November—down from 3.6% in October—this group believed it was safe to ease the burden on households and businesses. They cited the “receding upside risks” to inflation as justification for their move.
However, the dissenting four members, including Chief Economist Clare Lombardelli, strongly disagreed. They contended that inflation is far from defeated, particularly pointing to “elevated wage growth” and persistent price rises in the service sector. For this group, cutting rates now is a gamble that could allow inflation to become entrenched, requiring even harsher measures down the line.
Governor Andrew Bailey, who voted with the majority, tried to strike a balance in his public statements. While he confirmed that the Bank believes rates are on a “gradual path downward,” he warned that future cuts are not a foregone conclusion. “With every cut we make, how much further we go becomes a closer call,” Bailey cautioned, managing the expectations of those hoping for rapid relief.
This split vote creates a cloud of unpredictability for 2026. If the “hawks” are right and inflation spikes again, the Bank may be forced to pause or even reverse these cuts. But if the “doves” are correct, the UK might avoid a deeper recession. For now, the narrow victory for the rate-cutters provides a temporary boost, but the internal battle at the Bank is far from over.