Interest rates live: Bank of England set to cut rate after inflation falls in boost to homeowners

The FTSE 100 made strong progress on Wednesday, supported by a greater-than-expected cooling in inflation and a rise in oil prices.

The FTSE 100 index closed at 9,774.32 points, with an increase of 0.9 percent and 89.53 points. It was previously traded at 9,853.13.

The FTSE 250 index increased by 123.78 points, increasing by 0.6 percent, at 22,164.76 points, while the AIM All-Share index increased by 2.07 points, increasing by 0.3 percent, at 751.48 points.

Weak inflation data in the UK has confirmed the Bank of England’s (BoE) expected interest rate cut on Thursday, raising the possibility of further cuts in 2026, analysts said.

ING’s developed market economist James Smith said the sharp decline in November inflation gave a “green light” to the interest rate cut in December.

“Christmas came early for doves at the Bank of England and inflation came in well below expectations in November,” he said.

Mr. Smith said he expected inflation to be higher in December, partly due to a seasonal increase in airfares.

However, he noted that “the recent decline in inflation fits within a broader set of evidence that price pressures are easing”, adding: “We expect headline inflation to fall quite close to 2 per cent by May.”

He foresees two more rate cuts in February and April next year.

Besides falling inflation, the MPC is also expected to take into account other signs that the economy is cooling, including rising unemployment, slowing wage growth and stagnant economic growth.

Danni Hewson, head of financial analysis at AJ Bell, said: “While 3.2 per cent is still well above the Bank of England’s target, it is expected to be the final piece of the jigsaw that will enable interest rate setters to offer borrowers their own festive gift with a rate cut on Thursday.”

The bank’s mission is to reduce inflation to the target level of 2 percent.

Ms Hewson added: “There are still big question marks over what 2026 will bring, and markets do not expect the Bank of England to cut interest rates by more than one or two next year, so borrowers hoping to see a return to the ultra-low levels many people have become accustomed to will have to adapt.”

Economists think interest rates will be cut before Christmas after inflation fell to an eight-month low in November.

The Bank of England is expected to cut borrowing costs from 4 percent to 3.75 percent when it announces its next decision on Thursday.

This will reduce borrowing costs to the lowest rate since the beginning of February 2023.

Experts said the Bank’s Monetary Policy Committee (PPC) will be encouraged by the latest economic data to cut interest rates at the last meeting of the year.

The decision follows the release of the latest inflation data, which showed a larger decline in Consumer Price Index (CPI) inflation than analysts had expected.

The Office for National Statistics (ONS) said the CPI rate fell to 3.2 per cent in November from 3.6 per cent in October.

While this was largely due to the decline in food and beverage inflation from 4.9 percent to 4.2 percent, there was also a decline in alcohol and tobacco prices.