BoE Delivers Dovish Cut with Hawkish Twist: 25bps to 3.75% in Narrow 5-4 Vote

The​‍​‌‍​‍‌​‍​‌‍​‍‌ Bank of England decided to cut the Bank Rate by 25 basis points to 3.75% on December 18, 2025. This is the sixth time the rate has been reduced since August 2024, and the central bank is still on its gradual easing cycle. The vote of the Monetary Policy Committee was very close, 5-4, in favor of the rate cut. Governor Andrew Bailey and Lombardelli, Taylor, Dhingra, and Breeden deputies were the five members who voted for the cut, while Greene, Mann, Pill, and Duggan were the four dissenters voting for the rate to be left unchanged and holding. The split reflects the closest voting in recent meetings, and thus among the MPC, there are more and more arguments as to whether the policy should be tightened or relaxed further in the neutral rate vicinity.

The MPC saw the easing of wage and price pressures that were the underlying cause; thus, inflation risks were considered broadly balanced. However, headline CPI is expected to stay above the 2% target until Q2 2026 mainly because of higher tobacco duties and airfares, while Q4 GDP growth is now forecasted to be around zero. Bailey, the Governor, stressed the importance of following the data and qualifying further easing as "a closer call" when near neutral levels (estimated 2-4%), thus not giving any advance indication of another cut.

The announcement was considered less dovish than expected by the markets, leading to the sterling to increase 0.3-0.4% against the dollar and the gilt yields to go up substantially. There was also a reduction in the future rate cut possibilities, with only 40 basis points being expected by mid-2026 as against 60 bps previously. The stronger pound was one of the factors that led to the risk-off flows that were going on, and this, in turn, was an indirect way of Bitcoin's getting some support amid the continuance of yen carry-trade ​‍​‌‍​‍‌​‍​‌‍​‍‌unwinds.