Bank of England to cut interest rates in December and again in Q1 2026

A Reuters poll of 61 economists shows a majority (48) now expect the Bank of England to cut Bank Rate by 25 basis points to 3.75% on Dec. 18 and for a further reduction to 3.50% in Q1 2026, reversing October’s more hawkish read; futures markets have largely priced in a December cut. The shift reflects persistent but cooling inflation (stuck at 3.8% since July and likely to ease to 3.6% in October), signs of a softening jobs market and the BoE’s slim 5-4 hold vote with Governor Andrew Bailey as the likely swing voter. Poll medians forecast inflation averaging 3.0% and 2.5% over the next two quarters and GDP growth of 1.4% this year and 1.1% next, while next month’s Budget — which is not expected to raise income tax — is seen as modestly disinflationary but less so than earlier assumptions.

Analysis

A Reuters poll of 61 economists shows 48 respondents (nearly 80%) now expect the Bank of England to cut Bank Rate by 25 basis points to 3.75% on Dec. 18, with a further cut to 3.50% expected in Q1 2026; interest rate futures have almost completely priced in a December cut. The Monetary Policy Committee’s 5-4 hold earlier this month, with Governor Andrew Bailey as the swing voter, underscores that a cut is contingent on forthcoming inflation and labour-market evidence.

Inflation has been stuck at 3.8% since July and is likely to ease to 3.6% in October, while poll medians forecast inflation averaging 3.0% and 2.5% over the following two quarters; GDP growth is seen slowing from 1.4% this year to 1.1% next. The Nov. 26 Budget is not expected to raise income tax and is judged modestly disinflationary, but Santander and poll respondents flag that the fiscal impact will be smaller than earlier assumed.

Market tone from the article is mildly positive and dovish: Bitcoin is noted to have ticked up near $91,000 after a seven‑month low, and the piece highlights strong YTD performance in selected AI/tech names referenced by the article. Key risks are persistent above‑target inflation or a stronger jobs print that could keep the BoE on hold and prompt rapid repricing of short-dated rates.

Key Decisions for Investors

• Position tactically for an increased probability of BoE easing by modestly raising short‑end duration exposure or reducing short‑rate hedges ahead of Dec. 18, but size positions conservatively given inflation remains at 3.8% and the MPC split
• Use upcoming UK data (Oct inflation print, labour‑market indicators) and the Nov. 26 Budget as primary catalysts to add to dovish trades or to trim risk if prints come in hotter than expected, consider options-based hedges to protect against a hawkish surprise
• Adopt a measured risk‑on tilt toward GBP‑sensitive assets and selected risk assets (including tactical exposure to BTC and AI/tech names highlighted in the article) only after confirmation of cooling inflation or on pullbacks following recent lows