The Bank of England (BoE) is anticipated to cut interest rates just once more this year, likely in November, according to a Reuters poll of economists. This follows the BoE’s recent decision to lower the Bank Rate to 5.00% from 5.25% in August, a move that was narrowly approved by a 5-4 vote. Governor Andrew Bailey has stressed that any further reductions will be “careful.”
Unlike the U.S. Federal Reserve and the European Central Bank, which are both expected to reduce rates by 75 basis points this year, the BoE is expected to proceed more cautiously. Since December 2021, the BoE has raised its rates by a total of 515 basis points to combat inflation, which peaked at 11.1% in October 2022—a 41-year high.
Although inflation briefly hit the BoE’s 2% target in May and June, it climbed back to 2.2% in July and is projected to reach 2.75% by the end of the year. “We’re witnessing headline inflation inching towards 2.75%-3.00% by year-end,” said Stefan Koopman of Rabobank, who noted that inflation is slowing but very gradually.
A majority of economists surveyed expect the BoE to hold the Bank Rate at 5.00% in September, with a single rate cut to 4.75% likely in November. However, markets are pricing in the possibility of two rate cuts, potentially bringing the rate down to 4.50% by the year’s end.
The UK economy has shown some resilience, expanding by 0.6% in Q2 and 0.7% in Q1, the fastest growth in over two years. Economists predict GDP growth will average 0.3% per quarter through 2025, with annual growth rates of 1.1% in 2024 and 1.3% in 2025. Wage inflation remains a concern, still nearly double the BoE’s target despite recent easing.