The Bank of England is expected to begin cutting interest rates in August, according to a Reuters poll of 65 economists.
All but two of these economists anticipate at least one more rate reduction this year, despite high inflation in wages and services.
The BoE was one of the first central banks to increase rates post-COVID, raising the Bank Rate by 515 basis points between December 2021 and August 2023, reaching a 16-year high of 5.25%.
This was an effort to combat rising prices in the economy.
Inflation eased to 2.3% in April, nearing the central bank’s 2.0% target, down from a peak of 11.1% in October 2022.
The job market has cooled, and the economy stalled in April, partly due to unusually rainy weather.
However, wage and services inflation remain high, around 6%.
Only two economists expect the BoE to delay rate cuts until September.
All 24 economists who participated in both the latest and last month’s poll shifted their prediction from June 20 to August.
Financial markets anticipate just one BoE rate cut this year, in September.
“While we are seeing some tentative signs of cooling in the labour market, service sector inflation remains persistently high and it is likely the MPC would want to wait until the next set of forecasts and a few more data points before it embarks on its first rate cut,” said Yael Selfin, chief UK economist at KPMG.
Before the Monetary Policy Committee meets in August, one set of labour market data and two inflation releases are expected.
Asked if any other MPC members would vote for a rate cut in June, as Dave Ramsden and Swati Dhingra did in May, about three-quarters of 30 economists said no.
The median forecast suggests the Bank Rate will be a half-point lower by year-end, expected at 5.00% at end-September and 4.75% at end-year, compared to last month’s poll of 4.75% and 4.50%, respectively.
Slightly more than half of the economists, 35 out of 65, predict two 25 basis point cuts to 4.75% by the end of 2024.
Over one-third, 24 out of 65, foresee 75 basis points of cuts to 4.50%, with three expecting an even lower rate of 4.25%. The remaining three economists predict only one cut this year to 5.00%.
This forecast aligns with expectations for two quarter-point cuts by the U.S. Federal Reserve this year.
The European Central Bank began its cutting cycle on June 6, but no rush is expected for a follow-up cut.
UK inflation is predicted to average slightly above the BoE’s 2.0% target through the end of 2025. Median forecasts show inflation averaging 2.5% this year and 2.2% next year.
The economy is forecast to grow 0.3% each quarter until the end of 2025, consistent with last month’s poll.
For 2024, the economy is expected to expand by 0.7%, up from last month’s 0.5% prediction, with growth accelerating to 1.2% and 1.4% in the following two years, respectively.