Bank Rate Cut Offers Relief but Consumer Caution Persists

James O’Donnell, director of research & consulting at TransUnion in the UK, comments on the recent Bank of England interest rate update:

“The Bank of England’s decision to cut interest rates to 3.75% will be a welcome relief for many households as consumer sentiment shows early signs of improvement. Our latest TransUnion Q4 Consumer Pulse report shows 44% of UK consumers are optimistic about their household finances for the year ahead well above the 26% at the start of the rate hike journey back in 2022. Consumers will be equally pleased with the cooling rate of inflation, with energy prices remaining relatively flat this winter.

“However, even as inflation cools, it remains a top concern for 84% of adults. This is compounded by the rising unemployment rate which jumped to 5.1% for the three months to October from 4.3% this time last year. Associated slowing wage growth forecasts and falling jobs vacancy volumes represent new difficulties even as we emerge from the cost-of-living crisis. These were all cited by the Monetary Policy Committee (MPC) as reasons behind the dropping rate. After years of high job vacancies, high wage growth and low unemployment, consumers are facing an unwanted downturn, and many households will likely feel the strain.

“The rate cut offers consumers some breathing room, but they remain cautious with just over one in 10 (11%) consumers increasing their spend in the last 6 months, signalling that households remained focused on essentials, and partially contributing to the lacklustre market performance and the slowing economy that the Bank of England used to justify the latest rate cut.

“Credit appetite is also cooling after two years of high demand; just 22% of consumers intend to refinance existing credit or apply for new credit in the year ahead.  While consumers remain cautious towards spending and credit, today’s rate cut will provide some relief to households. But it’s vital that lenders maintain a responsible, data-driven approach, supporting consumers through the transition and ensuring fair access to credit.

“It should be noted that the vote was close with just 5-4 in favour of this latest rate cut. We can expect a continued cautious approach from the Monetary Policy Committee (MPC) in coming quarters.

“As a final observation, slightly contrary to the Bank’s observations, while unemployment is technically on the rise, employment is notably flat, with the proportion of adults in employment remaining practically unchanged since this time last year. Much of the rise in unemployment can be instead attributed to a drop in the economically inactive population instead, signifying a counterintuitive rise in consumer and market activity.”

Notes:

TransUnion’s Q4 Consumer Pulse study, is based on the survey of 1,000 adults in the UK, conducted between 25 Sept. and 7 Oct. 2025.