This week, the Bank of England (BoE) decided to cut the interest rate by 25 basis points, the second reduction since late summer, in line with market expectations.

The Bank of England monetary policy committee (MPC) voted eight-to-one to cut rates, with the dissenter preferring to leave cuts unchanged at 5 per cent. Inflation is expected to increase to above its 2 per cent target to 2.5 per cent by the end of the year, from 1.7 per cent in September. The market was expecting rates to fall to 4.75 per cent prior to the announcement.

In view of this, BoE governor Andrew Bailey has said it is “likely that interest rates will continue to fall gradually from here.”

UK Chancellor of the Exchequer Rachel Reeves welcomed the news but said “she is under no illusion about the scale of the challenge facing households.”

Here are some reactions from investment managers to the decision.

Nicholas Hyett, investment manager at Wealth Club
“After two weeks of volatile political theatre, the Bank’s decision to stick to the script and cut rates is very welcome. Inflation remains moderate and economic growth positive, if anaemic. Yes it will drive a modest pickup in inflation, but GDP is also expected to be around 0.75 per cent higher next year than it would otherwise have been.

“The big unknown is the future path of wage growth. A relatively tight labour market has driven sticky service inflation, but now seems to be easing. The problem is that rises to the minimum wage and National Insurance contributions in the Budget have the potential to keep service inflation higher going forwards if employers pass those costs on. All in all, this is far from a showstopping set of MPC minutes – it feels like the Bank is happy to wait in the wings and see how the politics plays out.”

Luke Bartholomew, deputy chief economist, abrdn
“A cut from the Bank of England was always extremely likely. But the outlook for interest rates from here has become more clouded following both the Budget and the US presidential outcome. The fiscal stimulus announced in the Budget puts upward pressure on growth and inflation in the near term, which will keep rates a bit higher than they otherwise would have been. Meanwhile the stronger dollar and higher US yields following the US election result represents a challenge for the Bank, as a weaker pound may lead to more imported inflation pressure, while higher US borrowing costs risk pulling UK market rates higher than policymakers want. On balance, we expect the Bank’s gradual pace of easing to continue, with quarterly 25 bps rate cuts through next year but there are now risks in either direction, which could keep the rates market volatile.”  

Daniele Antonucci, chief investment officer at Quintet Private Bank (parent of Brown Shipley)
“It’s really not a surprise that the Bank of England is finally catching up with other central banks and cutting rates again. After all, UK inflation is now more under control, having dropped below target to a three-year low, and the Monetary Policy Committee had eight members for a cut and one for a hold. This is a more decisive outcome than the five-to-four vote for the previous cut.

“The Bank has so far been more cautious than the US Federal Reserve and the European Central Bank, resulting in a more hesitant rate cutting cycle. But we think in the end it will likely be just a little less than the other major central banks. The monetary-fiscal interplay is very important here, as markets will continue to assess the Budget effects, which the Bank considers to be somewhat inflationary.

“Government decisions to raise the cap on bus fares, hike value-added tax on private school fees and increase employers’ social security contributions [National Insurance], together with a hike in the national minimum wage, are likely to boost inflation. That said, the magnitude of the overall effect isn’t obvious: employers do face rising costs, but the inflation impact depends on whether they adjust their labour force or perhaps accept lower profits. While these forecasts for growth and inflation include the impact of higher spending and taxes, they don’t include the effect of a rise in market borrowing costs since the Budget, which would lower the growth and inflation projections. After an initially positive reaction during the announcement, gilt yields started to trend higher again, showing concerns about significant public-sector borrowing. Further out, if bond yields continued to rise, it’s possible that the Bank could cut less than currently expected by markets."

Matthias Scheiber, global head of multi-asset portfolio management, Allspring Global Investments 
"As expected, the Bank of England cut interest rates for a second time this year. Despite a slowing in growth and inflation, the BoE is likely to remain cautious and data dependent as the latest budget surprised on the upside which could result in higher inflation. As a consequence, we think a December cut has become less likely. With the BoE being careful we expect more interest rate uncertainty shorter-term though the longer-term outlook for UK gilts remains constructive as both growth and inflation continue to cool."

"The economic environment remains supportive for corporate spreads. Whilst the automotive manufacturers and luxury goods companies face a more challenging operating environment, European corporates in the third quarter have reported a second sequential period for earnings expansion. Corporate fundamentals remain benign and falling policy/cash rates should act as a catalyst, over time, to crowd investors out of cash into corporates," Chris Burrows, portfolio manager for the global fixed income team at Allspring Global Investments, added.

Michael Metcalfe, head of macro strategy at State Street Global Markets
“The BoE reduced rates and adjusted its forecasts in relation to the recent Budget largely as expected. But it was what was not in the forecasts that was perhaps the most telling. The BoE’s projections are based on market implied interest rate assumptions taken in the second half of October, so before the Budget, but they still saw inflation falling to target. The implication is that the market move up in interest rate expectations since the Budget is excessive and that more cuts are possible. A tendency that will only be further encouraged if another risk not noted in the November policy report, a US universal tariff on exports, is realised.”

Mohammed Kazmi, chief strategist and senior portfolio manager at UBP
"Gilt markets have taken the BoE’s decision to cut rates by 25 bps in its stride, with little market reaction. This comes in stark contrast to the price action observed over the past couple of weeks given the event risk that came from the domestic budget and the US elections. Whilst the bank significantly raised its growth and inflation profile for the UK economy in 2025 as a consequence of the budget, much of this was already in the price given that the market is pricing the BoE to cut rates to the highest terminal rate within the G10, at around 4 per cent.

"With government bond yields globally having now corrected over the past month towards more reasonable levels and credit spreads continuing to find support from the soft landing backdrop, we believe it presents an opportunity for investors to take advantage of the attractive yields on offer within the asset class and with the election clearing event having now passed. In this environment we have a preference for the higher income segments of the market such as high yield as we anticipate for the default rate cycle to remain benign and the AT1 market given robust banking fundamentals."

Julian Jessop, economics fellow at the free market think tank the Institute of Economic Affairs
"The Bank of England was right to cut interest rates again today but should move further and faster. Rates are still higher than necessary to keep bearing down on inflation, especially when the Bank is continuing to tighten policy by running down its holdings of government bonds. Indeed, a majority of members of the IEA’s Shadow Monetary Policy Committee voted to cut rates by a half a point rather than a quarter. Inflation is now back close to target and expected to remain there, but the full effects of past increases in interest rates and the deceleration of money growth have yet to feed through.

"The additional uncertainty and market volatility triggered by the Budget and Trump’s victory had prompted some to speculate that the MPC might hold off today. Delivering the rate cut that almost all had expected should therefore help to reassure households, businesses, and investors. The Bank has also endorsed the Office for Budget Responsibility (OBR) view that the additional spending and borrowing in the Budget will provide a temporary boost to growth and inflation. This could slow the pace of rate cuts in future, though the Bank stuck to its guidance that rates will fall gradually, perhaps a quarter point every three months, taking the Bank rate to 3.75 per cent by the end of next year.

"However, the Bank’s forecasts are based on assumptions about the path of market interest rates which already look too optimistic. The increases in taxes and other business costs in the Budget, compounded by the hit to confidence, should also limit any upsides to growth or inflation. The Bank acknowledged the uncertainties here, implying rates could still be cut more quickly. But there is a clear risk that the MPC is too slow to respond."