Experts predict that the Bank’s rate-setting committee will likely maintain UK interest rates at 5% on Thursday
The Bank of England may halt interest rate cuts, cautioning that it needs to be “careful” not to rush the decision as inflation pressures persist.
Experts predict that the Bank’s rate-setting committee will likely maintain UK interest rates at 5% on Thursday. The central bank had previously reduced rates from 5.25% in August, marking the first reduction since 2020.
Governor Andrew Bailey stated that this was possible because inflationary pressures had “eased enough”, but emphasised that policymakers “need to be careful not to cut interest rates too quickly or by too much”. UK Consumer Prices Index (CPI) inflation returned to the Bank’s 2% target level in May and June, before rising slightly to 2.2% in July.
A team of economists from ING explained some of the caution can be attributed to inflation in the services sector, such as hospitality and culture, which the Bank’s policymakers closely monitor when assessing domestic price increases. Services-only inflation reached 5.2% in July, down from 5.7% the previous month, but still higher than levels seen in the US and Eurozone. They anticipate the majority of the committee will vote to keep rates steady this month, before resuming cuts in November.
Sanjay Raja, senior economist for Deutsche Bank, noted that “despite cutting rates in August, the MPC struck a more cautious tone around inflation risks something that will likely stick in September”.
The Bank of England is expected to maintain the same rates this Thursday, but may reduce them again in November, according to predictions. Analysts at Investec Economics concur that a “back-to-back cut” following August’s decision is unlikely from the Bank. However, they also pointed out recent official data showing no growth in the economy for July, marking the second month of stagnation, which could increase the chances of another rate cut.
Andrew Goodwin, chief UK economist for Oxford Economics, suggested that most members of the Monetary Policy Committee will likely “likely to be content to sit back and reassess the situation in November, a meeting at which the MPC will update its forecasts to incorporate the impact of the Budget “.
He believes that this fiscal event could be the key factor to deviate the MPC from the gradual loosening path it advocated in August, implying a quicker rate cut. Meanwhile, the Bank of England might consider the European Central Bank’s (ECB) decision to cut interest rates in the Eurozone on Thursday, marking the second consecutive reduction.
The ECB’s rate-setting council lowered the main deposit rate from 3.75% to 3.5% during the meeting. In other news, the US’s Federal Reserve could implement its first cut to the nation’s interest rates next week.