Will interest rates go down tomorrow? Bank of England’s key factors and 2026 predictions
The Bank of England’s (BoE) next meeting to set interest rates will be held tomorrow (December 18) and all eyes will be on the Monetary Policy Committee (MPC) and whether its members will continue to cut interest rates.
The base rate, now at 4 percent after being cut three times this year, impacts businesses, consumers and taxpayers on everything from mortgages to loans to savings; So what do experts predict both this week and beyond?
Will interest rates be reduced?
After a highly divisive vote in November where analysts were divided on expected results and the vote was 5-4 in favor of the MPC, this time the situation is very different.
Almost everyone is expecting a cut in interest rates as the BoE’s cautious approach means they are giving themselves until after Rachel Reeves’ Budget to decide their next move.
Now that the Budget impacts have been absorbed and new data for November is in, everything points to a cut in the base interest rate to 3.75 per cent.
Perhaps most importantly, this week’s inflation data came in lower than expected at 3.2 percent, meaning the BoE can trust that the rate cut is well-timed and necessary.
“A rate cut tomorrow is almost certain, but markets should not expect unanimity on the vote,” said Emma Wall, chief investment strategist at Hargreaves Lansdown, while Danni Hewson, head of financial analysis at AJ Bell, added that “there are signs we are scaling back inflation’s sneaky second peak.” This indicates an interest rate cut.
Barclays analyst Jack Meaning wrote in a research note that a disruption was also expected, “albeit in a cautious tone.”
In other words, most analysts and economists expect another split vote, with some of the MPC’s more cautious members wanting to stay put while inflation is still well above the 2 percent target, but overall a cut will win the day.
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But interest rate decisions take into account many factors over a long period of time, as well as expectations of what will happen next, and this year has been challenging on both counts.
In addition to the domestic situation where inflation will remain high for an extended period of time, we face further uncertainty in 2025 as a result of Donald Trump’s tariffs, the introduction of businesses dealing with higher labor costs, and rising geopolitical tensions after Israel’s attack on Iran sparked a brief scare in oil prices.
When it comes to mortgages in particular, it is worth remembering that many products are priced using future interest rate expectations (swap rates), so changes in this market can already be taken into account.
But for savers, whether or not there’s an immediate discount on variable rates, it’s always worth checking the best offers on the market to make sure your money is earning you as much as possible.
Influential factors
The MPC has nine members and their votes decide whether to lower, raise or keep the base rate the same.
Factors MPC members will examine will include jobs and wages data, the level of inflation across the UK and economic growth.
Each of these arrived last week in November, and each says that at face value cut, cut, cut will be the result: rising unemployment, falling inflation and no economic growth at all – in fact UK GDP fell by 0.1 per cent in the three months to October.
High inflation is a reason to keep interest rates high because it can deter businesses from investing in new projects or hiring; These are the things that increase earnings and spending power. Conversely, fewer jobs and lower wages mean less spending power and lower demand; This helps prevent further price increases.
The latest key data showed wage growth slowing and unemployment rising throughout the year. These are factors that can cause interest rates to fall; There are also external factors that may affect the UK over which the government and the Bank of England may have little or no control.
How about 2026?
The more we look into the future, the darker the picture becomes; Much will depend on how the economy responds to the November Budget.
Barclays expects the next cut to be made in March rather than February unless economic conditions improve significantly.
“There are still big question marks over what 2026 will bring, and markets don’t expect the Bank of England to cut interest rates by more than one or two over the next year, so borrowers are hoping to see a return to the ultra-low levels many people have become accustomed to,” added AJ Bell’s Ms Hewson.
But the Trades Union Congress wants the BoE to go much further, saying it has “been too cautious this year and inflation was already lower than they expected last month”. Therefore, a rate cut this week should be the beginning of a series of cuts in the coming months. “This is long overdue and this is the blow the economy needs.”
The next MPC voting dates will be on February 5, March 19 and April 30.
