United Kingdom: Central Bank decreases rates in August
At its meeting on 1 August, the Central Bank decided to reduce the Bank Rate by 0.25 percentage points to 5.00% with a majority vote of 5-4; four members preferred to maintain the Bank Rate at 5.25%. This was the first time that rates have been cut since early 2020.
The key domestic factors influencing the Central Bank’s decision were the recent falls in headline inflation, services inflation and private-sector earnings growth. In particular, headline inflation was at the Bank’s 2.0% target for the second straight month in June.
The Central Bank stated that monetary policy would need to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term had dissipated further. Our panelists see between 0–75 basis points of additional cuts later this year.
Giving his take on the outlook, ING’s James Smith said:
“We suspect the data on services inflation and wage growth will improve as the year goes on, making the committee more comfortable with proceeding with at least one more cut this year. We suspect that will most likely come in November, and we think that will most likely be followed by another in December.”