The Bank of England has cut interest rates from 4% to 3.75%, its sixth cut since last summer.

The decision follows a bigger-than-expected fall in the consumer price index rate of inflation in data released this week. While inflation is still above the Bank‘s 2% target, the fall to 3.2% helped swing today’s decision, with five of the Bank’s nine-member monetary policy committee (MPC) voting for a cut.

The governor, Andrew Bailey, who had voted to leave rates on hold in November pending more data on inflation, shifted his vote this time around.

Money latest: What interest rate decision means for you

“We’ve passed the recent peak in inflation and it has continued to fall,” he said, “so we have cut interest rates for the sixth time, to 3.75 per cent, today. We still think rates are on a gradual path downward. But with every cut we make, how much further we go becomes a closer call.”

The decision will mean those with floating rate mortgages should immediately see a reduction in their monthly repayments – and some lenders are now reducing fixed-rate deals to 3.5% or below.

The Bank also gave its first full assessment of the economic impact of last month’s budget. It said the budget, which included measures to reduce energy bills and freeze fuel duty, should help push inflation half a percentage point lower next year.

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Better news on cost of living

That would mean CPI inflation would drop to close to the Bank’s 2% target as soon as the second quarter of 2026, nearly a year earlier than it originally expected.

However, the Bank also warned that growth remained weak. It said it expected gross domestic product to flatline in the fourth quarter of the year.

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Since the decision was a narrow one, with four members of the MPC voting against the cut, some investors might judge that the Bank remains finely balanced on future decisions. Right now investors expect another cut by the end of next spring and, possibly, another one thereafter.

But whether rates eventually settle at 3.5% or 3.25% – or even lower – remains a matter of debate.

The economy may be stuttering, unemployment may be rising, inflation may be above target. But even so, the Bank of England delivered mortgage payers some welcome Christmas cheer on Thursday.

The quarter percentage point cut in interest rates was far from a surprise – the vast majority of economists and investors had expected the Bank to cut rates down from 4% to 3.75%. But even so, for those still struggling with the cost of living, the decision will help lighten the load through the winter months.

And, if the pricing in financial markets is anything to go by, there will be more cuts to come next year with one or maybe two more cuts priced in by investors.

Money latest: What interest rate decision means for you

There was Christmas cheer, too, for the chancellor, as the Bank revealed that it expected the measures in her budget to reduce inflation by half a percentage point next year, thanks largely to her measures to reduce energy bills and freeze fuel duty.

This is a hefty reduction – and means that far from having to wait until 2027 to see inflation come down to its 2% target, the Bank thinks the target will be hit as soon as next year. In short, the Bank has offered its seal of approval to Rachel Reeves, who said repeatedly that she was hoping to craft a non-inflationary budget.

However, deeper questions still remain. To what extent is Britain’s low inflation a good news story – the fruit of clever monetary and fiscal policy – or something else? For there are some who worry that instead it bears all the hallmarks of economic slowdown. The slower the economy is growing, the less people spend and the lower inflation goes. And the Bank said it expected economic growth to drop to zero in the final quarter of the year.

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November: Bank governor’s message on rates

There are also suspicions inside the Bank that one of the consequences of Donald Trump’s trade war is that cheap imports from China, that would previously have flowed into the US, might be diverted to Europe. That would, on the one hand, push down consumer prices. However, it also risks pushing European manufacturers into the red as they struggle to compete.

On the other hand, there’s a deeper worry that, having experienced high inflation for quite a few years, consumers are now so used to it that they might “bake” higher inflation into their personal mental maps. That could, in turn, mean they push for bigger annual wage increases, which in turn pushes inflation even higher. In short, the question as to whether the inflation genie is still out of the bottle remains.

Finally, there’s the question about whether the trade war is a signal of something bigger: the end of the decades-long period of uber-globalisation. If it becomes more expensive to transport goods around the world, that implies that everything could gradually become more expensive.

Still, for the time being, the Bank has delivered its last piece of analysis and policymaking before the end of the year. And, for the most part, it’s a set of measures and analysis that most people will be cheered by.

Executives at Vodafone will next month meet parliamentarians amid growing scrutiny of its treatment of dozens of its retail franchisees, which a prominent MP said possessed “uncomfortable echoes of the Post Office [Horizon IT] scandal”.

Sky News understands that senior executives from the FTSE-100 telecoms giant will hold talks with MPs, including the Reform deputy leader Richard Tice, on 21 January to discuss the escalating row.

The meeting, which MPs had been pursuing for several weeks, will come weeks after ministers indicated they were prepared to review the legal structure of franchise agreements in Britain.

Money latest: How low could mortgage rates go?

A group of 62 Vodafone retail franchisees brought a High Court claim last year, alleging that the company had “unjustly enriched” itself by cutting sales commissions paid to the small business owners who ran its stores in 2020.

The Guardian reported allegations this week that a number of those affected had committed suicide or attempted to take their own lives.

In September, Vodafone began proposing financial settlements to some of the group of former franchisees.

Mr Tice, whose engagement on the issue was triggered by the plight of one of his constituents, said in a statement on Thursday: “Vodafone’s behaviour in this case has uncomfortable echoes of the Post Office scandal, where a powerful organisation is avoiding accountability while ordinary people running our high streets are left to suffer.

“That is completely unacceptable.

“Vodafone must stop stonewalling, accept that serious failures in its franchising operation have caused real harm, and engage properly with Parliament to establish what went wrong and how this will be put right.

“I welcome the fact that a meeting is finally taking place, but it should not have taken this long.

He added: “This must now be a serious and transparent discussion.

“MPs need urgent answers about Vodafone’s conduct and meaningful engagement in response to the deeply troubling stories that continue to emerge.”

Vodafone rejected comparisons with the Horizon scandal.

In a statement, Vodafone said: “We have tried on multiple occasions to resolve this complex commercial dispute.

“We offered to make a significant payment which we believed would ensure no claimants had debts associated with their franchise.

“We were disappointed to learn that our financial offer was rejected by the company funding the claim, without having shared it with all claimants.

“We remain open to further talks and are sorry if any franchisee had difficulty in operating their business.

“We continue to run a successful franchise business in the UK, with many current franchisees keen to take on more stores.”