December rate cut even more likely after UK economic growth slows

Hopes for a pre-Christmas interest rate cut have been boosted further after new data showed the UK economy almost stalled in the third quarter of 2025. The Office for National Statistics (ONS) reported that Gross Domestic Product (GDP) grew by just 0.1% between July and September. This was less than economists' consensus prediction of 0.2%.

The weak GDP data followed disappointing UK job market data, released on Tuesday, which showed unemployment has risen to its highest level since the pandemic. The market odds of a Bank of England (BoE) base rate cut had jumped from 60% to 80% following the release of the latest UK job market data, however, some investment analysts now believe that the disappointing GDP data makes a December BoE base rate cut almost a certainty.

Why has the latest UK GDP data shifted rate cut expectations?

At its last meeting on 6th November, the BoE's Monetary Policy Committee (MPC) was divided, voting by a narrow 5-4 margin to hold the bank rate at 4.0%. The four dissenting members voted for an immediate 0.25% cut. The five-member majority, including Governor Bailey, adopted a "wait and see" approach, stating they needed more evidence that demand was weakening and the labour market was cooling.

This week's economic data releases appear to have delivered that evidence. The data showed that:

• Unemployment is rising - The UK unemployment rate for July-September rose to 5.0%, its highest level since early 2021. This was above the 4.9% consensus forecast.
• Wage growth is slowing especially in the private sector - Annual growth in average weekly earnings (total pay) slowed to 4.8%, missing expectations of 4.9%. Furthermore, private sector pay growth fell sharply to 4.4%, its weakest pace since early 2021. This was seen as a key signal that wage-driven inflation is abating.
• UK economic growth is slowing - UK economic growth was just 0.1% in the third quarter of 2025, which was lower than the consensus estimate of 0.2%. The data also showed that monthly GDP shrank by 0.1% in September. However, while the crippling cyber-attack on Jaguar Land Rover was blamed for a large part of the September fall, analysts agree that underlying momentum remains weak. This view is also supported by the fact that the ONS revised August's growth rate down from 0.1% to zero.

How has the market reacted?

The market odds of a BoE base rate cut had climbed as high 80% following the release of the UK jobs market data, earlier in the week. However, following the poor economic data, the market now believes there is an 85% chance that the BoE will vote for a rate cut at its next meeting on 18th December 2025.

However, the upcoming Autumn Budget on 26th November 2025 will likely influence the BoE's decision. Weak economic data provides a difficult backdrop for Chancellor Rachel Reeves, who is widely expected to announce fiscal tightening and tax rises, which may further hinder economic growth. This could potentially open the door wider for the BoE to ease monetary policy and cut rates in response, but much depends on how the investment market reacts to the announcements in the Budget.

For full details on what might be announced in the upcoming Budget read our article "Latest Budget 2025 predictions & rumours".

Meanwhile, the latest market predictions of where the Bank of England base rate is expected to be over the next five years can be found in our article "Will interest rates keep falling and how low will they go".