Bank of England expected to cut rates again

The Bank of England (BoE) is expected to cut interest rates again in November this year, having previously lowered its policy rate by 25 basis points to 5%.

The Bank of England cut its policy rate to 5% from 5.25%, the highest level in the past 16 years, for the first time since March 2020. The Bank of England has kept its policy rate at 5.25% since August 2023, and this is the first interest rate adjustment in a year.

BoE Governor Andrew Bailey said at a press conference after the decision that the rate cut was a “finely balanced decision” and gave no signal about the bank’s future decisions, saying they would make decisions at each meeting.

Economists predict that the Bank of England’s decision today could be the start of a rate cut cycle, with another rate cut possible in November.

Jessica Hinds, head of economics at Fitch Ratings, stressed that the BoE’s decision to cut its policy rate by 25 basis points to 5% was a delicate balancing act, saying, “Ultimately, however, it was a dovish decision. The progress made on the deflation front was a result of the Monetary Policy Committee (MPC) members being “sufficient to convince the majority that a restrictive, slightly accommodative policy stance can be maintained.”

Reminding everyone that the MPC text emphasises the meeting-by-meeting approach to decision-making, Hinds made the following comment:

“Given BoE Governor Bailey’s warning that ‘we should be careful about cutting rates too much or too fast’ and the divergence of views, there has been little change in the future path of interest rates. We have long said that today’s meeting would be the start of rate cuts. “We think the next rate cut is likely to be in November as the doves on the MPC have digested the consequences of their decision and continued progress on the deflation front convinces some of the undecided hawks.”

“no promises”

James Smith, developed markets economist at ING Think, also reminded that the Bank of England cut its policy rate for the first time in the current tightening cycle.

Smith pointed out that the MPC text and the central bank’s reluctance to admit that this decision could be the beginning of a rapid cycle of policy rate cuts, “The Bank of England’s statement made no mention of the possibility of future cuts, except to say that interest rates should remain restrictive “for long enough”, a phrase that is “it has been there for a long time”. Made his assessment.

Smith noted that unlike central banks in Europe and the United States, the Bank of England is not in the habit of making pre-commitments on future policy changes.

Smith said the country’s service sector inflation and wage growth data are expected to improve as the year progresses, “We think the MPC will be more willing to cut interest rates at least once more this year. This rate cut will most likely be made in November, followed by another in December.” “We expect that by the summer of next year, the bank rate could be at 3-3.5%.” Sharing his knowledge.