By Shaloo Shrivastava
According to a Multibagger poll, the Bank of England is expected to maintain its main interest rate at 5.00% next week but is likely to reduce it in November. Despite inflation remaining above the central bank's 2% target, Governor Andrew Bailey emphasized the need for caution to ensure inflation stays low.
Since August, when the BoE lowered its Bank Rate from a 16-year high of 5.25% to 5.00% in a close 5-4 vote, inflation has seen a slight increase to 2.2% in July. It is not forecasted to drop below target until at least 2026.
The BoE had raised rates by 515 basis points between December 2021 and August 2023 to address soaring inflation, peaking at an 11.1% high in October 2022. Despite headline inflation nearing the BoE's target, service cost increases and wage growth above 5% have made the central bank cautious about easing policy too quickly.
While the latest GDP data indicated a stagnation in Britain's economy in July, the BoE's Monetary Policy Committee is expected to maintain its approach of gradual rate cuts.
Global counterparts like the European Central Bank and the Federal Reserve are anticipated to reduce interest rates this month by a quarter-point and a total of 75 basis points this year. Bailey reaffirmed at the Jackson Hole conference in August that interest rates would need to remain restrictive for a significant duration, implying a steady course of action.
All 65 economists surveyed predicted that the Bank Rate would remain at 5.00% next week, with nearly 80% expecting one more cut this year. The majority foresee a rate cut in November, potentially bringing the year-end rate to 4.50%.
Interest rate futures are pricing in further cuts in November and December, with a projected end-year rate of 4.50%. Median forecasts suggest a gradual decline in the Bank Rate, reaching 3.75% by the end of 2025.
Market makers in the survey anticipate one 25 basis point cut in the next quarter, with inflation predicted to average 2.1% and 2.5% in Q3 and Q4, respectively. GDP growth is forecasted to average 1.1% this year, 1.3% next year, and 1.5% in 2026.
In summary, while the Bank of England is expected to maintain its interest rate next week, economists foresee a rate cut in November to address inflation concerns. The gradual approach to policy adjustments reflects the central bank's cautious stance amidst economic uncertainties.