Bank of England cuts Interest rates to 3.75% - the lowest level in nearly three years

This brings borrowing costs down to the lowest rate since the beginning of February 2023.

The decision follows the release of the latest inflation data, which showed a bigger drop to Consumer Prices Index (CPI) inflation than analysts had been expecting.

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

Five members – Andrew Bailey, Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor – voted in favour of the cut, securing a majority.

Chancellor Rachel Reeves said: “This is the sixth interest rate cut since the election – that’s the fastest pace of cuts in 17 years, good news for families with mortgages and businesses with loans.

“But I know there’s more to do to help families with the cost of living.

“That’s why at the Budget we froze rail fares and prescription charges, and will be cutting £150 off the average energy bill next year.”

This was largely driven by food and drink inflation which dropped to 4.2% from 4.9%, while alcohol and tobacco prices also eased.

Minutes of the MPC’s meeting read: “This was above the 2% target but, following the Budget announcements on administered prices and indirect taxes, headline inflation was now expected to fall back more quickly in April, to closer to 2%.”

It means CPI will near the Bank’s target level considerably earlier than the early 2027 timeframe that it had forecast in November.

Measures in the autumn Budget, delivered by Chancellor Rachel Reeves last month, are likely to lower CPI inflation by around 0.5 percentage points, according to the MPC.

This includes one-off support for household energy bills and freezing fuel duty which will kick in from April next year.

“We still think rates are on a gradual path downward,” Mr Bailey said.

“But with every cut we make, how much further we go becomes a closer call.”

Meanwhile, the MPC said it was expecting the economy to show no growth over the final quarter of 2025.

This comes after official data showed a 0.1% contraction in October, which was weaker than it had been expecting.

Meagre economic growth as well as a weakening jobs market and slower pay growth pointed to underlying inflation pressures reducing, the Bank said.

However, the four MPC members who voted to keep interest rates unchanged were more concerned about prolonged inflation persistence, particularly within the services sector and among wage growth.

This is a breaking story, more follows...