Bank of England Cuts Interest Rate to 3.75%

The Bank of England has reduced interest rates to 3.75% in a closely contested decision that could have significant implications for hospitality businesses across the UK.

Monetary policymakers approved the quarter-point reduction by a narrow margin of five votes to four, bringing the base rate down from 4%. The decision marks the lowest borrowing costs the country has seen since early 2022, though officials have indicated that future reductions may not come as easily.

Governor Andrew Bailey acknowledged that whilst the downward trajectory for rates is expected to continue, each subsequent cut will require more careful consideration. The move comes as inflation figures showed prices rising at 3.2% annually through November, prompting the decision to ease monetary policy.

Impact on Hospitality Sector Borrowing

For licensed trade operators and hospitality businesses, lower interest rates could provide some relief on loan repayments and financing costs for expansion or refurbishment projects. However, the narrow voting margin suggests the Bank remains cautious about the pace of future cuts.

The monetary authority now projects inflation will move nearer to its 2% target during spring and summer 2026, earlier than previously anticipated. This revision follows the government’s recent Budget measures, including energy bill reductions of £150 per household and frozen fuel duty.

Economic Headwinds Persist

Despite the rate cut, the Bank has painted a sobering picture of current economic conditions. Growth forecasts for the final quarter of this year have been revised to zero, with intelligence gathered from businesses nationwide pointing to subdued trading conditions.

Hospitality operators may particularly relate to the Bank’s findings that consumer spending remains restrained. Officials noted that shoppers continue to prioritise value, with smaller shopping baskets becoming the norm as households manage their budgets carefully.

The Bank also reported that many businesses are hesitating to replace departing staff and actively seeking efficiency improvements, suggesting employment pressures that could affect hospitality recruitment and operations.

.