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Bank of England "navigating treacherous waters" as it approaches rate decision

ended 04. November 2024

Following the Budget and the OBR’s upward revision of inflation forecasts, the Monetary Policy Committee is “navigating treacherous waters” ahead of this week's interest rate decision, experts have said. Though expectations of more aggressive rate cuts have now been tempered, the consensus remains that the Bank of England will cut rates by 0.25% given that headline inflation is below target — with one arguing the criticism policymakers have received for being behind the curve may be an influencer. Another warned the Bank against adopting a wait-and-see approach: “Now is not the time to be timid, as the UK economy is barely growing and many people, despite the cost of living crisis technically being over, are struggling to make ends meet. The Bank must cut now.”  

7 responses from the Newspage community

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Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
The Bank of England is navigating treacherous waters as it approaches this week's rate decision. The recent Budget has cast a long shadow over policy deliberations. Following the inflation rate plummeting to below target for the first time since 2021, the stage was set for a series of rate cuts before the end of the year. However, the Chancellor’s £40 billion tax-raising plan, accompanied by the OBR’s upward revision of inflation forecasts, has introduced a new variable, tempering market expectations for more aggressive monetary easing. Despite these headwinds, the consensus firmly leans towards a November rate cut, with Threadneedle Street likely opting for a more cautious stance at the December meeting. Also, with a growing trend of global easing putting pressure on the central bank, there is still a need for the BoE to assess the full impact of the Budget, coupled with inflationary pressures stemming from rising energy prices and oil shocks from Middle East tensions.
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Graham Cox
Director at Bridging Hub
Another base rate cut appeared inevitable on November the 7th. But with UK gilt yields rising in response to the Chancellor's Budget, the Bank of England Monetary Policy Commitee may adopt a wait-and-see approach until the next meeting in December. I hope they don't. Now is not the time to be timid, as the UK economy is barely growing and many people, despite the cost of living crisis technically being over, are struggling to make ends meet. The Bank must cut now.
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Jack Tutton
Director at SJ Mortgages
The Bank of England need to stick to their guns and cut the base rate was widely predicted prior to the Budget. A further cut will show their confidence in the UK’s economic lookout which is much needed, especially after the markets' initial reaction to the Budget last week.
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Tony Redondo
Founder at Cosmos Currency Exchange
Though a rate cut could stimulate growth in a challenging environment, and some analysts are predicting that the Monetary Policy Committee will lower the base rate by a quarter-point to 4.75%, there are concerns that the new government’s first Budget may push up inflation. Recent data showed a drop in the headline inflation rate to 1.7%, the lowest since April 2021, and easing wage growth. The Bank of England cut rates in August but held them steady in September. However, following the Budget fallout, inflationary pressures could complicate the decision. While there are arguments for a cut, the inflation risks from the Budget should lead the Bank to prioritise price stability over growth. Ultimately, they will need to balance the potential benefits of a rate cut against the risks of rising inflation expectations. All eyes will be on how they navigate these priorities.
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Anita Wright
Independent Financial Adviser at Ribble Wealth Management
The Bank of England has previously faced criticism for being slow to adjust interest rates and behind the curve. This experience is likely to influence their upcoming decision, as they will aim to avoid further criticism or market disappointment by delaying a rate cut, especially now the inflation figures have fallen below 2% target. Despite the strong likelihood of inflation returning due to factors such as the Budget, public sector pay rises and other economic drivers, the Bank is likely to proceed with a rate cut rather than maintain rates at their current level.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
The economy is crying out for a base rate reduction this week, and prior to the Budget this was more certain than any of the previous years' decisions. However, gilt yields spiking and the inflationary wage and NI cost increases announced in the Budget mean a reduction of the base rate is now probable rather than certain. It should be some months before the Budget's impact feeds through into the inflation figures, so hopefully Theadneedle Street can focus on the here and now and cross that bridge when it comes.
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Elliott Culley
Director at Switch Mortgage Finance
The language from Andrew Bailey before the Budget was very positive and two rate cuts seemed likely to see out the year. The OBR's conclusion that the Budget could end up increasing inflation and that interest rates may fall more slowly as a result is an ominous sign that the Bank of England may be more cautious, a feeling we have grown accustomed to associating with them. It remains to be seen if the aftermath of the Budget will impact their decision making. Reducing the rate would send a good message, which may kickstart the economy.