Bank of England set for knife‑edge vote on December rate cut, says Oxford Economics

The Bank of England’s December interest rate decision is likely to come down to another knife‑edge vote, with Governor Andrew Bailey again in the hot seat – but this time more likely to back a cut, according to Oxford Economics.

Senior UK economist Edward Allenby told Mortgage Introducer he expects a repeat of November’s 5–4 split, with Bailey holding the casting vote.

“December’s MPC meeting is likely to be another 5-4 vote, with Governor Bailey casting the decisive vote. We think Bailey will switch back to a cut, but it’s a close call,” he said.

“In November, Bailey suggested that he wanted to see more evidence that inflation was falling before voting to cut. Since then, CPI inflation fell to 3.6% in October from 3.8%, and though November’s inflation data will only be published the day before the MPC’s announcement, we expect the headline rate to remain comfortably below the 3.8% reading seen ahead of the November meeting,” Allenby continued.

“Therefore, this would appear to fulfil Bailey’s criteria for a December rate cut.”

For the mortgage market, a Bailey‑backed cut would mark the formal turn in the interest rate cycle that many lenders and brokers have been anticipating – but Oxford Economics stresses that the decision remains finely balanced.

Inflation progress vs pay uncertainty

While headline inflation has clearly moved in the right direction, the labour market picture is more nuanced – and still a potential source of caution for rate‑setters.

“Labour market data have generally been softer since the November meeting, with a renewed fall in private sector employment and weaker earnings growth,” Allenby said.

However, he warned that the outlook for pay into 2026 is still uncertain, with business surveys not yet fully aligned with the Bank’s 2% inflation target.

“There’s still significant uncertainty about the direction of pay growth in the new year, with surveys suggesting that firms’ expectations for pay growth over the coming year remain above a target-consistent pace,” he noted.

Despite that uncertainty, Allenby thinks the balance of risks – and market expectations – point towards a cut going ahead this month.

“Current market pricing suggests a December cut is almost certain, and we haven’t heard Bailey actively push back against market pricing,” he said.

“Given his implicit endorsement of a move at one of the next couple of meetings, we think he’ll probably prefer to support a December cut rather than go against market pricing and potentially weaken the credibility of future signalling of the outlook for rates.”

For brokers, that means the key watchpoints ahead of the meeting will be the latest CPI print and any last‑minute messaging from Bailey or other MPC members that might hint at unease over wage or services inflation.

What it means for Bank Rate – and mortgage pricing – next year

READ MORE: Bank of England to end rate cuts at 3.5%

Even if the MPC pulls the trigger on a December cut, Oxford Economics does not expect a rapid easing cycle – a message that will be crucial for borrowers and lenders hoping for significantly lower mortgage costs.

“If we’re correct that the MPC will cut Bank Rate later this month, it’s unlikely that the committee will follow this up with another cut in February,” Allenby said.

Instead, he expects the Bank to signal a cautious, gradual approach to further easing.

“We expect the minutes will suggest that further loosening is likely next year, though the need for caution will be emphasised,” he added.

Looking further ahead, Oxford Economics sees only modest additional reductions in Bank Rate over the next two years as weaker growth and falling inflation steadily take hold.

“With inflation expected to cool and activity growth likely to disappoint, we expect two 25bp rate cuts in 2026,” Allenby said.

Crucially for the mortgage market, he believes this broadly matches what is already priced into financial markets.

“This is broadly in line with current market pricing, which suggests there’s limited room for swap rates and mortgage rates to fall considerably from their current levels,” he said.

Takeaways for brokers and borrowers

For mortgage intermediaries, the Oxford Economics view implies:

• A December cut is more likely than not – but still a close call, hinging on Bailey’s vote and the final inflation print

• Even if Bank Rate falls this month, the Bank is unlikely to launch an aggressive cutting cycle in early 2026

• With market pricing already reflecting a relatively shallow path for future cuts, there may be limited scope for a dramatic repricing lower in swap rates and fixed‑rate mortgage products

In practice, that leaves brokers advising clients in an environment where the direction of travel for rates is downwards, but the journey is likely to be gradual rather than steep – and where timing the market may matter less than choosing suitable products and terms for borrowers’ broader financial circumstances.