BENGALURU, Aug 19 (Reuters) – According to a Reuters survey of economists, the Bank of England is anticipated to reduce its benchmark interest rate by 25 basis points just once before the end of 2024, with another reduction projected for early 2026. This cautious approach stems from ongoing inflationary pressures and a stronger-than-expected economy, which continue to influence monetary policy decisions. Most analysts have maintained their previous forecasts, reflecting limited shifts in economic expectations during August, a traditionally slow month for data releases.
Earlier this month, the central bank lowered the Bank Rate to 4.00% following a closely divided 5-4 vote in the Monetary Policy Committee. Governor Andrew Bailey emphasized that any further easing should proceed cautiously, avoiding excessive or rapid reductions. A recent jump in inflation to 3.6% in June prompted the BoE to revise its peak forecast to 4.0% for the current quarter. Upcoming data is expected to show a further rise to 3.7% in July, despite the bank’s 2.0% target.
Despite these figures, the majority of economists believe inflation will stabilize near current levels, indicating no major revisions to their projections. Of the 62 economists surveyed between August 13 and 19, 50 anticipate a single 25-basis-point cut this year, most likely at the November meeting, which aligns with the bank’s quarterly forecasting cycle. Nine forecast no further reductions in 2024.
Market pricing through interest rate futures suggests the next easing may not occur until early 2026. HSBC senior economist Chris Hare noted that while disinflationary trends, particularly in wage growth, may support a November cut, risks remain. He warned that if inflation expectations climb further or wage pressures persist, the MPC could opt to pause. Currently, average weekly earnings excluding bonuses rose 5% over the three months to June—well above the 3% level consistent with the inflation target.
The UK economy has also shown unexpected strength. A 0.3% expansion in the last quarter outpaced other G7 nations in the first half of the year. Growth is projected at 1.1% for 2024 and 1.2% in 2026, similar to 2023’s pace. Elliott Jordan-Doak of Pantheon Macroeconomics highlighted the economy’s underlying resilience, which affects rate decisions. He expects the BoE to hold rates steady through next year, citing a higher neutral interest rate, implying only limited cuts even under adverse conditions.
While 59 economists predict a quarter-point reduction in early 2026, there is no consensus on the number of cuts beyond that. Divergent views reflect uncertainty about the future path of monetary policy.
— news from Reuters
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BoE to cut interest rates just once more this year, held back by resilient inflation, growth: Reuters poll
BENGALURU, Aug 19 (Reuters) – The Bank of England will cut interest rates by a quarter-point once more this year and then again in early 2026 as a resilient economy generates persistent inflation, according to most economists in a Reuters poll who have largely not changed their outlook in the past month. n nEarlier this month the central bank cut Bank Rate by 25 basis points to 4.00% after a rare second round of voting, in a 5-4 split in the Monetary Policy Committee. Governor Andrew Bailey said easing should not happen “too quickly or by too much.” n nSign up here. n nAn unexpected surge in inflation to 3.6% in June prompted the BoE to lift its forecast for it to peak at 4.0% this quarter. Data due on Wednesday are likely to show inflation, which the BoE targets at 2.0%, rose further in July to 3.7%. n nBut economists in the poll still expect inflation to peak around current levels, suggesting most have not made changes to their forecasts during August, which tends to be a quiet month with many away on summer holidays. n nFifty of 62 economists polled August 13-19 said the BoE will cut Bank Rate by 25 basis points once more this year, most likely at the November meeting which coincides with the bank ‘s own forecasting round. Nine expected the central bank to remain on hold. n nInterest rate futures contracts are pricing in the next rate cut in early 2026. n n”Right now the Bank of England is really on a knife-edge in terms of whether it wants to cut interest rates further. We think the disinflationary momentum, particularly in the wage data, will be just about enough to tip the MPC into cutting rates in November. I wouldn ‘t be surprised to see continued split votes – two-way votes, three-way votes,” said Chris Hare, senior economist at HSBC. n n”The risk is we do ultimately get 4% inflation, coupled with the risk wage growth doesn ‘t ease back in the way we expect. If we see indicators of inflation expectations being even more uncomfortably elevated than they are… it would increase the risks of the majority of the MPC opting to pause for the time being.” n nOfficial data showed overall average weekly earnings, excluding bonuses, grew 5% in the three months to June. A rate of 3% is seen as consistent with the BoE ‘s 2% inflation target. n nBritain ‘s economy has also defied predictions of a slowdown. n nA surprise 0.3% expansion last quarter put Britain ahead of its G7 peers for the first half of the year. Forecasts suggest steady growth of 1.1% this year and 1.2% in 2026 – a pace broadly similar to last year. n n”What we ‘re learning about the economy is that it has an underlying degree of resilience that people had not anticipated, and ultimately that feeds into our rates call as well,” said Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, who expects the BoE to stay on hold until the end of next year. n nWhile a majority of 59 economists predicted another quarter-point cut in early 2026, there was no consensus on the rate path throughout next year, with a split on how many cuts would be delivered. n n”We think the neutral rate is higher,” Jordan-Doak said, referring to the rate that neither stimulates nor restricts the economy. “This means only a couple of rate cuts even in a worst-case scenario.” n n(Other stories from the Reuters global economic poll) n nReporting by Anant Chandak and Shaloo Shrivastava; Polling by Mumal Rathore, Debrah Gomes and Renusri.K; Editing by Ross Finley and Hugh Lawson