The Bank of England is expected to start cutting interest rates in August, according to all but two of the 65 economists polled by Reuters.
Most anticipate at least one additional reduction this year despite persistently high wage and services inflation. One of the first central banks to raise rates following the COVID pandemic, the BoE increased the Bank Rate by 515 basis points from December 2021 to August 2023, reaching a 16-year high of 5.25% to combat soaring price pressures. Overall inflation eased to 2.3% in April, nearing the central bank's 2.0% target, down from a peak of 11.1% in October 2022.
While the job market has begun to slow, and the economy stalled in April partly due to unusually rainy weather, wage and services inflation remain around 6%, a key concern for the BoE. Only two of the 65 economists polled expected the BoE to delay the rate cut until September instead of August. All 24 economists who participated in both the latest and previous month's poll and had forecasted a June 20 cut have now shifted their prediction to August. Financial markets are currently pricing in only one BoE rate cut this year, slated for September.
Before the Monetary Policy Committee meets in August to release its detailed quarterly forecasts, one set of labour market data and two more inflation reports are expected. When asked if any other MPC members would vote for a rate cut in June, as Dave Ramsden and Swati Dhingra did in May, about three-quarters (22 of 30 economists) said no, while the rest said yes.
The poll's median forecast indicated that the Bank Rate would be a half-point lower by year-end. It is expected to be at 5.00% by the end of September and 4.75% by year-end, compared to 4.75% and 4.50%, respectively, in last month's poll.
