United Kingdom: Central Bank leaves rates unchanged in September
Latest bank decision: At its meeting on 19 September, the Bank of England (BOE) voted to maintain the Bank Rate at 5.00%, after a 25 basis-point cut at the prior meeting.
Bank opts for cautious approach: The Central Bank’s decision to hold rather than continue cutting was driven by the desire to ensure that inflation returns to the Bank’s 2.0% target sustainably; inflation is still slightly above target, with services inflation—a closely-watched metric for the BOE—elevated at over 5.0% in August.
Monetary easing to come: The Central Bank suggested that future rate cuts would be gradual, and that monetary policy would need to remain restrictive for “sufficiently long” until inflation risks had diminished. Our panelists see between 0–75 basis points of additional cuts later this year, before over 100 basis points of cuts in 2025. That said, even at end-2025, rates will still be far above pre-pandemic levels.
Panelist insight: On the outlook, Nomura analysts said:
“We think the BoE appears confident in a quarterly pace of rate cuts, bar a significant deviation from its current forecasts. Bailey already hinted in recent interviews that moving at every meeting would be too much for the BoE.”
Berenberg’s Andrew Wishart said:
“Whereas services inflation is running around 4% yoy in the US and eurozone, it is 5.6% in the UK. […] We expect the BoE to cut by less and slightly more gradually than investors envisage, with one cut per quarter until Q3 2024 when Bank Rate reaches a terminal rate of 4%.”