Recent information, including wage growth and the consumer price index (CPI), suggests the Bank of England (BoE) may cut interest rates in December. While the chance of a November cut is increasing, the Monetary Policy Committee (MPC) could wait for the upcoming budget. Any delays to a rate cut into February depend on new information. Factors like strict fiscal policies and labor market conditions hint that BoE rate cuts may continue into 2026. In August, private sector wage growth fell short of expectations, and in September, CPI inflation was also lower than predicted. Possible upcoming budget announcements and tax changes might reduce inflation. Currently, inflation sits nearly twice the BoE’s 2.0% goal, and MPC members have expressed caution. However, signs of a weaker labor market and slower wage growth may encourage the BoE to ease rates further. This could gradually decrease services inflation, leading to three additional BoE rate cuts by 2026.

Fxstreet Insights Team

The FXStreet Insights Team is made up of journalists who gather insights from market experts. They provide information through a mix of notes and analyses from both internal and external sources. Recent data shows that a Bank of England rate cut is likely coming in December. Key indicators, such as the September CPI of 3.8% and slowing private-sector wage growth, support this outlook. The economy is losing momentum, as shown by the recent PMI data from September, which is just below the 50 mark that indicates growth. While a cut in November is possible, the Monetary Policy Committee is likely to wait for the budget on November 26. This budget is expected to include fiscal tightening, which would reduce growth and inflation. Such a move would give the BoE more reasons to ease monetary policy soon after. For derivatives traders, this suggests they should prepare for lower UK interest rates. Interest rate swaps and SONIA futures that anticipate cuts in December 2025 and into 2026 might be appealing. Currently, the market indicates a little over 60% chance of a December cut, suggesting there may still be opportunity if economic data continues to weaken.

Looking Further Ahead

Looking ahead, we expect the BoE to cut rates at least three more times in 2026, more than what the market currently predicts. The easing labor market, which is a shift from the tight conditions of 2023 and 2024, should continue to reduce wage pressures. This will be crucial for lowering the high services inflation. This direction in policy is expected to impact the pound sterling negatively. Traders might want to explore strategies that benefit from a weaker GBP, such as buying put options on the currency. The difference in policy between a cutting BoE and a potentially more cautious US Federal Reserve may create opportunities, especially in the GBP/USD exchange rate. Create your live VT Markets account and start trading now.

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