Are Interest Rates Being Cut Again by the Bank of England?

As the Bank of England's (BoE) next Monetary Policy Committee (MPC) meeting approaches on 19 September, there is growing speculation about whether they will cut interest rates again. Investors are particularly focused on this decision following recent rate cuts by the European Central Bank and the expected move by the US Federal Reserve on Wednesday. Economists are speculating whether there will be another rate cut, especially after the BoE lowered borrowing costs by a quarter of a percentage point in August.

Several economic indicators appear to support the case for further cuts:

Services Inflation: One of the most telling signs is the drop in services inflation, which fell more than expected in July. Services inflation, often seen as a gauge of underlying price pressures, has shown signs of cooling, potentially paving the way for more rate cuts.

Economic Output: The UK economy stagnated in June and July, and combined with broader economic uncertainty, this may prompt the BoE to act again. Despite the August rate cut, the current economic conditions may require further intervention.

Wage Growth: Another factor is the slowdown in wage growth, which reinforces the idea that inflationary pressures are easing. While wage growth is still elevated, it is gradually slowing, suggesting there is less need for aggressive rate hikes to control inflation.

Inflation Data Could Be Key

The upcoming inflation data, due on 18 September—just a day before the BoE’s rate-setting meeting—could be crucial in shaping expectations. Economists are predicting headline CPI inflation to remain steady at 2.2% for August, while services inflation is expected to rise slightly from 5.2% in July to 5.5%. If inflation comes in higher than expected, the BoE might delay further cuts. However, if inflation shows signs of cooling, it could increase the likelihood of a rate cut in November. Currently, markets are assigning a 25% chance of a cut this month, with most investors expecting the BoE to hold off until November.

Future Rate Cuts Might Be On The Way

Upcoming Monetary Policy Committee meetings may see a reduction in interest rates. However, by November and December, it is anticipated that the potential for more significant rate cuts will become clearer. Recent data from the Bank's Decision Maker Panel survey indicates a notable decline in both expected and realised wage/price growth. Assuming this trend continues and becomes more evident in official statistics, we forecast successive interest rate cuts following November, leading to a base rate of 3.25% by the end of next summer.

Conclusion

There are strong signs pointing to the possibility of the Bank of England cutting rates in the near future. However, with inflation data still mixed and wage growth slowing but still high, the BoE is likely to proceed cautiously. Investors and consumers should keep a close eye on the latest economic data and the outcome of the 19 September MPC meeting to get a better sense of where interest rates are headed.

If you're a saver or borrower, now might be a good time to review your options, especially if you’re considering locking in a fixed-rate savings product or mortgage deal.

Moneda Capital can help you with fixed-rate investments designed for impeccable stability and consistency. Ideal for those looking to diversify their portfolio, we offer access to a variety of opportunities, including savings, fixed-rate investments, and asset-backed investments. These are tailored to provide both security and potential growth, covering both stable and growth-oriented assets across established and emerging markets.