Will the Bank of England cut interest rates today?
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There’s quite a bit of uncertainty surrounding the Bank of England’s decisions today.
At noon, the Monetary Policy Committee is expected to announce its latest interest rate decision, currently at 4%.
While the consensus appears to be to maintain the status quo, money markets indicate there’s a one in three chance of a drop to 3.75%. This would mark the sixth adjustment in borrowing costs since August 2024 as the Bank moves to relax previous restrictions aimed at controlling inflation.
Deciding what to do isn’t easy for the banks. UK inflation, while still elevated, hit 3.8% in September, lower than anticipated. Maybe this indicates some relief in cost-of-living pressures.
Policymakers are likely aware that Rachel Reeves, in a surprising pre-budget speech earlier this week, hinted at potential tax hikes to tackle inflation and slow growth.
“Rachel Reeves’ unexpected press conference could be seen as an appeal for support for the Bank of England. Her commitment to tackling inflation might suggest that the Bank doesn’t need to wait for the Budget before considering rate cuts. Deciding on this is indeed a finely balanced choice,” says Danny Hewson, Head of Financial Analysis at AJ Bell.
The recent slowdown in wage growth might also influence some rate policymakers to lean towards a cut.
“Recent economic signs—including lower-than-expected inflation, sluggish wage growth, and indications of softer activity in the third quarter—strengthen the argument for the Bank to think about cutting interest rates now. However, this remains a very delicate decision, as the Bank may be waiting for clearer direction from the upcoming autumn budget,” explains Julien Lafargue, Chief Market Strategist at Barclays Private Bank.
Agenda
- 8:30 a.m. GMT: Eurozone construction PMI for October
- 9:30 a.m. GMT: October UK Construction PMI
- Noon GMT: Bank of England interest rate decision
- 12:30 p.m. GMT: Bank of England press conference
Nomura Predicts Rate Cut
The Japanese bank Nomura forecasts that the Bank of England will implement a rate cut today.
Last Friday, they indicated they anticipated a “hawkish cut” and informed clients:
- The Bank is expected to reduce rates by 25 basis points at its November 6 meeting, also removing from guidance any mention of rates being “restrictive.”
- While recent weak data would support a rate reduction, achieving this will require the approval of key swing voters on the committee.
- We believe a rate cut is a close decision—around 60% likely—yet consensus views lean towards maintaining rates. The main risk for this forecast is that the MPC might wait for more significantly impactful news before the December meeting.
Today’s Rate Decision Process
The decision regarding interest rates will involve nine members of the Bank’s Monetary Policy Committee, each with varied opinions on interest rate policies.
Some members advocate for lower rates to bolster the economy, while others prefer larger rates to combat inflation.
Indeed, while two committee members are on the dovish side, others stand firmly on the hawkish end. The last rate cut was a tight 5-4 vote, reflecting divergent opinions within the committee.
