Central Bank cuts rates in August

Latest bank decision: On 7 August, the Central Bank voted to cut the Bank Rate from 4.25% to 4.00%, taking total cuts to 125 basis points since mid-2024.

Monetary policy drivers: The Bank’s decision was underpinned by subdued underlying economic growth—notwithstanding the headline-grabbing Q1 GDP reading—easing wage growth, and forecasts of a sharp drop-off in wage growth ahead. The Bank decided to look beyond headline and core inflation both being nearly double the 2.0% target.

More cuts to come: The Central Bank hinted it could cut rates further going forward, which is also the prevailing opinion among our panelists.

Panelist insight: On the latest meeting, EIU analysts said: “Under normal circumstances, the UK’s current inflation outlook would argue for a pause. But the economy is losing momentum, and growth concerns are trumping inflation fears. The August cut brought the total rate cuts in this monetary easing cycle to 125 basis points, meaning that the base rate is now at its lowest level since February 2023, despite inflation moving further above the BoE’s 2% target, to 3.6% in June. The vote was razor thin. Four out of nine MPC members favoured holding rates steady, and it took a second vote to secure a five-four majority in favour of further easing.” On the outlook, ING analysts said: “A November rate cut is still more likely than not, though it’s not a particularly high conviction call right now given the very evident division on the rate-setting committee. Much also hinges on the jobs market, where employment has fallen in eight out of the past nine months, but where the survey data is looking a little less worrisome than it did earlier this year.”

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