Central banks poised to chop rates of interest earlier than Christmas

Borrowers on both sides of the Atlantic are set to be handed an early Christmas present as central banks prepare to cut interest rates.

In a move sure to attract the attention of Donald Trump, the Federal Reserve is set to cut rates in the US by 0.25 percentage points, to between 3.75 per cent and 4 per cent, on Wednesday.

The Bank of England is strongly tipped to follow suit the following week, on December 18, by lowering rates in the UK from 4 per cent to 3.75 per cent.

The moves would be welcomed by millions of households with mortgages as well as businesses hoping for cheaper corporate loans.

Analysts believe both banks will press ahead with rate cuts as concerns about jobs and economic growth outweigh those over stubbornly high inflation.

The decision in the US will be closely followed by the President, who has criticised Fed chairman Jerome Powell for lowering borrowing costs too slowly.

Decision time: Bank of England boss Andrew Bailey is due to give a speech, which will be pored over by analysts looking for clues about a decision on interest rates

Speculation is mounting over who Trump will pick to succeed Powell when his term ends in May, with Kevin Hassett, the director of the President’s National Economic Council, seen as the frontrunner.

‘This reportedly has bond investors worried due to concerns that Mr Hassett would cut interest rates too aggressively,’ said Philip Shaw, an economist at Investec.

While the Bank of England will not make its decision until the following week, governor Andrew Bailey is due to give a speech on Wednesday, which will be pored over by analysts looking for clues.

Under pressure: Jerome Powell

At the last meeting of the nine-strong Monetary Policy Committee (MPC) in November, Bailey cast the deciding vote in the 5-4 split against a rate cut.

Any hints that he is ready to change sides would be taken as a sure sign that rates will be cut before Christmas.

The big question will then be how many more rate cuts will come next year.

Investors are betting on another two UK cuts in 2026, taking rates down to 3.25 per cent, though some analysts believe the Bank will go further.

Goldman Sachs economist James Moberly said: ‘We maintain our view that the MPC, which decides interest rates, is very likely to cut the bank rate in December, followed by three more cuts to 3 per cent next summer.’

Russ Mould, investment director at broker AJ Bell, added: ‘Fed-watchers will also seek a steer from Powell on the outlook for 2026, where markets are looking for three more cuts by next Christmas.’