Rate cut next week now certain?

There aren’t too many certainies in life but a cut to the Base Rate next week appears to be one. With the US cutting theirs along with our shrinking economy, the choice for the Bank of England isn’t whether to cut the Base Rate or not but more like how much to cut it by. With lenders already pricing a cut in the Base Rate next week, all eyes will turn to what 2026 forecasts look like following the vote on Thursday. It could really ignite the rate war that’s been slowly heating up over the past couple of weeks.

While today’s GDP data makes a rate cut almost certain, I suspect the Bank of England will once again play it safe with only a modest 0.25% reduction. The reality is the economy needs a more decisive move — a 0.5% cut would send a strong signal of intent to stimulate growth and ease pressure on households and businesses. However, the Bank has shown time and again that it’s overly cautious and reactive rather than proactive. With inflation stabilising and growth stalling, hesitation now risks prolonging stagnation. Mortgage lenders have already begun to price in reductions, but for the market and wider economy to truly benefit, the Bank needs to show leadership and act boldly and not just tick boxes.

The Poor GDP figures can actually be a blessing for mortgage borrowers, as a slowing economy can equate to a lower base rate, in a bid to stimulate the market as a whole.

This 0.1% reduction will set alarms off with the Bank of England, those on the MPC sitting on the fence will feel it’s time to pull the trigger before Christmas.

A rate reduction is nailed on now as the Labour government hand the baton over to the BOE to single handedly save the UK economy. The BOE will keep usual form and reduce the base rate by 0.25%.

No doubt the Labour Party will take the plaudits for anothe base rate reduction as Rachel Reeves stated in her devastating budget

Central banks play the same game of “will we, won’t we” in their speeches, but underneath it all they face a very simple choice: tolerate higher inflation for longer, or risk a serious recession in a world that is already drowning in debt. With that backdrop, they will cut because allowing a full-blown downturn with today’s debt and interest burdens would be game over for the system.
So the GDP print is less a surprise and more a convenient justification. If your political rhetoric is “growth, growth, growth” while you load more costs onto businesses and households, you should not be surprised when the data turns ugly but you then give the BoE the cover it needs to pivot.
A 0.5% cut is not out of the question but the key point is that policy will now be set with an eye to warding off recession first and worrying about inflation second, because in this debt-laden environment they simply cannot afford the “collapse” part of a normal boom-bust cycle.

If inflation was under control then a rate cut would surely be nailed on. As it is we may see a hold until the inflation picture becomes clearer. A combination of inflation and low growth isn't good for anyone so if GDP is struggling, inflation needs to be tamed.

The UK economy continues to walk a tightrope, balancing sticky inflation on one side and insipid growth on the other. At this moment in time it is economic growth that needs to balanced more and a rate cut now is the action needed.
The economy badly needs a seasonal shot in the arm to encourage growth and investment rather than saving and inertia.
This will also give mortgage lenders room to reduce rates further and provide homebuyers further impetus to jump into the housing market rather than just dipping their toes in to test the waters. For the mortgage market it looks like it will be a busy start to the New Year.