Rates reset across the West

Rates reset across the West

Central banks across the Western world have been busy recalibrating policy settings, with interest rate cuts a common theme over the past 12-15 months. But the reasons for these moves, and the consequences, vary widely between economies. In the following analysis, I examine the recent cash rate changes across Australia, the U.S., the UK, Europe, Canada, and New Zealand, and place them in the context of each nation’s inflation and unemployment trends. Together, these snapshots highlight the mixed progress in taming inflation, the trade-offs being made, and the signals for both savers and borrowers in the year ahead.

I have tabled the cash rate movements from the Central Banks of these six Western World economies, accompanied by some brief economic observations.

Australia

Australia has cut its cash rate on three occasions from 4.35 per cent to 3.60 per cent over the six months to August 2025. Reserve Bank of Australia (RBA) governor, Michele Bullock, says she will need to rethink further interest rate cuts if inflation continues to surprise on the upside. In August the Australian unemployment rate was stable at 4.2 per cent, while the headline inflation rate was 3.0 per cent, year on year.

United States

The U.S. has cut its cash rate on four occasions from 5.50 per cent to 4.25 per cent over the 12 months to September 2025. U.S. short-term inflationary expectations remain elevated with consumer prices increasing by 2.9 per cent in August from a year earlier and the unemployment rate standing at 4.3 per cent, the highest level since October 2021.

United Kingdom

The UK has cut its cash rate on five occasions from 5.25 per cent to 4.0 per cent over the 12-months to August 2025. UK inflation was 3.8 per cent in the year to August 2025, the highest rate of the G7 (US, Canada, France, Germany, Italy, Japan, the UK) economies. The unemployment rate sits at 4.7 per cent, the highest level since July 2021.

Europe

The Eurozone has cut its cash rate on eight occasions from 4.50 per cent to 2.15 per cent over the 12-months to June 2025. The region’s economy appears to be stressed with the annual inflation rate sitting at 2.0 per cent in August 2025, whilst the unemployment rate is running at 6.2 per cent, and with Spain (10.3 per cent), Finland (9.3 per cent), Sweden (8.4 per cent) and France (7.5 per cent) stand outs amongst the more developed economies. 

Canada

Canada has also cut its cash rate on eight occasions, from 5.0 per cent to 2.5 per cent over the 15-months to September 2025.  The inflation rate was 1.9 per cent in August 2025, whilst the unemployment rate at 7.1 per cent is at a four year high.

New Zealand

New Zealand has cut its cash rate on seven occasions from 5.50 per cent to 3.0 per cent over the 12-months to August 2025.  The annual inflation rate is projected to hit 2.7 per cent in the September 2025 Quarter and expectations are for this to decline given the unemployment rate is at 5.2 per cent, a five-year high.

What does it all mean?

The six economies have, over an average period of 12 months, seen an average of six interest rate cuts (ranging from 3 in Australia to 8 in the Eurozone and Canada). The average cut across these six economies has been 1.75 per cent (ranging from 2.50 per cent in Canada and New Zealand to 0.75 per cent in Australia) from an average peak of 5.0 per cent to a current average cash rate of 3.25 per cent.  And in percentage terms, that is a 35 per cent reduction.

The impact has varied: in the Eurozone, Canada, and New Zealand, lower inflation appears tied to weaker economic conditions and higher unemployment, while in contrast Australia and the U.S. have remained more resilient, supported by relatively low unemployment but grappling with stickier inflation.

With inflation averaging around 2.7 per cent across these economies, the environment remains challenging for savers whose returns struggle to keep pace, while spenders benefit modestly from lower borrowing costs.

MORE BY DavidINVEST WITH MONTGOMERY

Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience.
David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.