The Bank of England (BoE) will announce its last monetary policy decision of 2025 on Thursday at 12:00 GMT.
The market prices a 25-basis-point rate cut, which would leave the BoE’s Bank Rate at 3.75%. The BoE Governor Andrew Bailey will not meet the press this time, but the bank will publish the meeting minutes, which contain details of the committee’s discussions.
Previous monetary policy meetings have shown a widely divided committee, and Thursday’s is likely to be another knife-edge decision. This time, however, the moderating inflation and the weaker economic outlook are likely to prompt Governor Bailey to tip the scales towards a rate cut.
UK labour market deteriorates, price pressures ease
The Bank of England left its benchmark interest rate unchanged at 4% at its November 6 meeting amid an evenly split monetary policy committee, with four members voting for a quarter-point rate cut, and Bailey’s voice deciding.
Governor Bailey affirmed that the risk that above-target inflation becomes more persistent has prevailed, despite policymakers’ concerns that an over-restrictive policy might weigh on consumption and damage economic activity.
Recent data, however, might have convinced the BoE Governor that it is time to lower borrowing costs further.
UK Consumer Price Index (CPI) figures released on Wednesday revealed that inflationary pressures eased beyond expectations amid a significant slowdown in food prices. The yearly CPI grew by 3.2% in November, easing from 3.6% in October and 3.8% in September.
UK Consumer Prices IndexBeyond that, labour data released on Tuesday confirmed that unemployment keeps growing, while wage growth is moderating. Average Earnings Including Bonus grew at a 4.7% pace in the three months to October, above expectations but below the previous months’ rates, while the unemployment rate increased to 5.1%, the highest level in nearly five years.
The UK Gross Domestic Product (GDP) report released last week revealed that the economy contracted for the second consecutive month in November, weighed down by weak services and construction output. Figures released in November showed that the UK economy slowed to a 0.2% growth in the third quarter from 0.3% in the second.
On the positive side, preliminary Purchasing Managers Index (PMI) figures showed that business activity improved beyond expectations in December in both the manufacturing and the services sectors. These figures have eased concerns about a sharp economic downturn, but are unlikely to change BoE policymakers’ votes.
How will the BoE interest rate decision impact GBP/USD?
Against this background, the market anticipates that the BoE committee will overcome its divergences and cut interest rates to 3.75% on Thursday to support a weakening economic growth.
The market’s focus will thus be on the vote split among MPC members. A lower number of voters calling for a steady monetary policy would be taken as a dovish turn, and might boost hopes of further rate cuts in the near term. This is likely to send the Pound lower.
GBP/USD Daily ChartAn evenly split committee, with Bailey keeping the tie-breaking vote again, suggests that the chances of further rate cuts in the near term are likely to remain low, which might provide some support for the Sterling.
The current technical picture shows a bullish GBP/USD heading into the BoE’s decision, favoured by a broad-based US Dollar weakness, as investors expect the US Federal Reserve (Fed) to ease interest rates further than the BoE in 2026.
“GBP/USD retreated sharply on Wednesday as the market braces for a BoE cut on Thursday,” says Guillermo Alcalá, FX Analyst at FXStreet. The pair is under increasing bearish pressure, targeting the December 9 low near 1.3280 and the December 2 low at 1.3180.
On the upside, Alcalá sees potential resistance at the broken trendline near the mentioned 1.3400 area ahead of the December 16 high at 1.3455. “The pair would need to confirm above those levels to ease bearish pressure and shift the focus towards the late September-early October highs, near the 1.3535 level”, says Alcalá.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Economic Indicator
BoE Interest Rate Decision
The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.
Read more.
Next release:
Thu Dec 18, 2025 12:00
Frequency:
Irregular
Consensus:
3.75%
Previous:
4%
Source:
Bank of England
Source: https://www.fxstreet.com/news/boe-expected-to-cut-interest-rate-to-375-amid-higher-unemployment-softer-inflation-202512180700
