Bank of England to cut rates to 3.75% this month, experts predict: "Early Christmas present for borrowers"

THE Bank of England (BoE) will cut rates to 3.75% this month in an "early Christmas present for borrowers", financial experts predict.

The rate is currently 4% and the next decision is due on December 18th, with many expecting the BoE governor Andrew Bailey to announce a slash to the rate.

Britain's economy is spluttering along with inflation currently at 3.6% – way above the Bank's target 2%.

Chancellor Rachel Reeves' Budget last week brought with it £26 billion tax rises by 2029 and raised the fiscal headroom to over £20 billion.

Financial experts expect that this will all mean that the BoE cuts rates from 4% to 3.75%.

Omer Mehmet, Managing Director at Welling-based Trinity Finance, said: "The Bank of England holding rates at 4% risks turning caution into paralysis, especially when households are still feeling the hangover from two years of high borrowing costs. 

“A trim to 3.75% in December would be a sensible step. It wouldn't be a victory lap, but it would be a measured move that signals confidence that the worst has passed. The Bank can always pause again if the data turns — but right now, a cut is the more credible choice.”

Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, said he wouldn't be surprised if it was cut even harder, by 0.5%.

He added: "The Bank of England is due to cut rates in December as consumer confidence falls yet again, and inflation weakens. The debate is not whether it will slash the base rate, but by how much. 

“There is expectation a few members of the committee will be brave enough to ask for a 0.5% cut, but the ultra conservative governor, Bailey, will lead his merry men in a moderate 0.25% doing little to nothing to ease the pain of this dampened economy.”

Ken James, Director at London-based Contractor Mortgage Services, said the BoE needs to be careful about high inflation.

He continued: “The Bank still fears inflation’s lingering ghost. Price pressures remain above target, and a premature cut risks undoing hard-won progress. However a cut is on the cards, not guaranteed but the Bank’s mood is shifting from stern Scrooge to cautious Fezziwig. 

"Savers should expect rates to soften; borrowers may finally feel a little relief if the festive spirit takes hold at Threadneedle Street as they weigh whether to offer the nation a modest Christmas mercy: a cut from 4% to 3.75.”

Ben Perks, Managing Director at Stourbridge-based Orchard Financial Advisers, said a cut was needed to ignite economic growth.

He added: "Mr Bailey has the opportunity to bring the Xmas cheer where Reeves failed. After being hammered by the Budget, working people could really do with some extra money in their pockets and a reduction in base rate would provide this. 

“Leave the inflationary fears in 2025 and do something to help the public going into 2026. The BoE have an opportunity to ignite some economic growth, let’s see a drop to 3.75.%”

Chris Barry, Director at London-based Thomas Legal, said action by the Bank is needed.

He continued: "The Bank of England has a habit of trying to drive forwards whilst looking in the rear view mirror. For many months the data has suggested a rate cut is what’s needed to stop the economy getting worse but instead they decide to hold. 

"Concern around the table seems to be coming from a place of inflationary pressure however no action will be bad news for both the property market and economic growth. 

"The government have made no attempt to support first time buyers with any kind of incentive to buy but with rents continuing to rise, the only hope people have is gifts from family to reduce the amount they need to borrow when they eventually take the leap from renting to home ownership. The BoE should step in now, provide some much needed relief for borrowers and help stimulate growth."

Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, said: "There's a good chance we'll get a rate cut to stimulate economic growth. The Budget didn't help the growth cause at all. 

“It's a tough balancing act against inflation though, which still hasn't come down far enough though. The Bank of England will be wary of a combination of low growth and inflation.”

Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said holidaymakers should head to North America for the best deals.

He added: "Bah humbug for savers and importers, but an early Bank of England Christmas present for borrowers, UK exporters and travellers looks set for 18th December, with markets pricing in around a 90% chance of a rate cut. 

"November's meeting saw a narrow 5-4 vote to hold rates, with four members already favouring a reduction to 3.75%, signalling the Monetary Policy Committee's dovish tilt. Inflation dropped to 3.6% in October from a 3.8% peak, and growth remaining weak, conditions for a cut appear firmly in place. 

“For ski holiday makers, they best head to North America. Despite recent weakness, the pound is still up over 4% against both the US and Canadian dollars over the past year. European slopes are pricier, with sterling down nearly 6% against both the euro and Swiss franc over the same period.”