Bank of England Rate Cut Expected

By Shaloo Shrivastava

BENGALURU (Reuters) – The Bank of England (BoE) is anticipated to lower its Bank Rate by a quarter-point to 4.75% on Nov. 7, based on a poll of all 72 economists surveyed by Reuters. However, a significant majority of nearly two-thirds foresee no changes in December, indicating a cautious approach from the BoE.

British inflation recently fell to a three-year low of 1.7% in September, down from 2.2%, and below the BoE's 2% target. This lower inflation rate may provide room for the Monetary Policy Committee (MPC) to reduce rates following a pause in September after a narrow vote favoring easing in August.

The British economy shows resilience, and there are expectations of increased investment due to Finance Minister Rachel Reeves' upcoming budget presentation.

BoE Governor Andrew Bailey and MPC member Megan Greene acknowledged the inflation drop but cautioned against over-optimism. Catherine Mann, another MPC member, remarked that there is still a long way to go regarding price growth moderation, suggesting that multiple rate cuts in consecutive meetings are not imminent.

Economist Ellie Henderson from Investec mentioned that favorable inflation data might bolster the committee's confidence about inflation moving toward the target sustainably, but they would not declare victory against inflation just yet due to existing volatility risks.

Of the economists surveyed between Oct. 22-28, all expected the Bank Rate to drop to 4.75% on Nov. 7, while about two-thirds — 46 of 72 — predicted stability at the December meeting. Others foresaw another 25 basis point cut. Among 16 Gilt-Edged Market Makers, 11 anticipated a hold in December, while five projected a cut. Interest rate futures indicated expectations for cuts in both November and December.

Even if the BoE implements two more cuts this year, it would still lag behind its international counterparts. The U.S. Federal Reserve and the European Central Bank previously cut rates by 50 and 75 basis points, respectively, and both are projected to implement a total of 100 basis points of cuts by year-end, while the BoE would only achieve 50 basis points.

Median forecasts suggest the Bank Rate might be 3.50% by the end of 2025, slightly down from the previous survey. Predictions ranged from 4.25% to 2.75% with no predominant consensus.

When asked about potential risks to the end-2025 Bank Rate forecasts, nearly 70% indicated it would likely be lower than expected. The remaining respondents speculated it might be higher.

Minimal Inflation Impact from UK Budget

Rachel Reeves is set to unveil her first budget on Oct. 30, which is expected to boost spending to improve services and enhance infrastructure in Britain. However, a survey indicated that the budget is unlikely to significantly influence UK inflation in the short term. About half of the respondents (nine of 18) believed it would have a minimal effect, seven anticipated a slight increase in inflation, and the rest predicted a drop.

Market economist Stefan Koopman from Rabobank suggested that Chancellor Reeves’ proposals would probably include strategies for raising taxes for daily expenses and borrowing for investments. This approach could initially stimulate demand and eventually enhance supply, leading to a more relaxed fiscal stance. Still, many believe the BoE will communicate that the budget will have a minimal net effect on the balance of demand and supply, allowing for their ongoing gradual easing path.

Current forecasts indicate inflation could average 2.6% this year, 2.3% in 2025, and 2.0% in 2026. UK GDP is expected to grow 1% this year, 1.3% next year, and 1.5% in 2026, with forecasts remaining largely consistent with previous polls.

(Other stories from the Reuters global economic poll)