The Bank of England is staying tight-lipped on when it expects to cut rates again.
But we think better news on services inflation and wage growth can unlock one, or more likelytwo rate cuts by year-end. The Bank of England hascut rates for the first time this cycle, by a quarter point to 5%. But reading the statement and the meeting minutes, the Bank appears incrediblyreticent to let markets run away with the idea that this could be the start of a rapid cutting cycle.
7% is both well above target/historical averages, and crucially higher that what the Bank had been forecasting in May. A lot of the recent upside surprise looks like noise, but we’ll get two more reports before September’s meeting and further overshoots would help cement a pause at that meeting. Finally, the BoE’s new inflation forecasts tell us that policymakers are pretty comfortable with what markets are pricing right now in terms of rate cuts.
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