The Bank of England is set to hold interest rates at 4% this week, the lowest level since March 2023, following August’s knife-edge decision to cut. According to Jeremy Batstone-Carr, European Strategist at Raymond James Investment Services, persistent inflation and a divided Monetary Policy Committee make another reduction unlikely in the near term.
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services, said:
“The Bank of England is widely expected to maintain the base rate at 4%, holding at the lowest level since March 2023 following August’s razor-edge and unprecedented second vote to cut. The vote is unlikely to be unanimous – the 9-person Monetary Policy Committee has been split for months, and perma-doves Swati Dhingra and Alan Taylor aren’t likely to be swayed, irrespective of the steady rise in consumer prices.
“In August the MPC flagged its discomfort regarding the near-term outlook for consumer prices, a view subsequently confirmed by stronger than expected price pressures in July. While dissenting MPC doves argue that rising inflation may prove transient, the upward trajectory of price pressures creates an uncomfortable backdrop for the majority to vote for a consecutive loosening.
“Furthermore, the Bank had cause to raise its near-term consumer price inflation peak in last month’s Monetary Policy Report to 4.0% this month, making a rate cut on this occasion hard to justify. Indeed, in recent testimony before the Treasury Select Committee, Bank Governor Andrew Bailey signalled that doubt surrounding when rates might be cut again had intensified, effectively ruling out a September cut.
“The Bank’s rate-cutting is consistent with the calibrated “careful” and “gradual” approach to policy-setting now familiar in the decision’s accompanying statement. The communique is unlikely to be adjusted, particularly as earlier comments pointing to a less restrictive stance have now been removed.
“Given that data for September’s CPI won’t be available until late October, it is unlikely that any softening in prices will be apparent by the time the MPC next meets on 6th November. With the looming uncertainty created by the Autumn Budget, scheduled for 26th November, the sixth rate cut in the current cycle could still be some months away.”
