Industrial action amongst doctors and transport workers, sticky inflation and a cooling labour market will certainly be giving the Bank pause for thought in continuing its current easing cycle and makes any imminent move on rates unlikely. Our view is that the Bank of England will hold firm at September’s upcoming meeting.
Markets have already priced in one further cut by year-end, and whilst November may have offered opportunity for that, there’s a strong case that the MPC will exercise caution ahead of the Autumn Budget, which is shaping up to be a pivotal moment for fiscal policy. It would be a significant leap of faith for the Bank to move prematurely without clarity on what the Chancellor plans to deliver.
Working on the basis of two consecutive pauses ahead of the Christmas meeting, we believe the regular quarterly approach is at an end and 4% may represent the neutral case for rates in the near term. We’re shifting away from an environment of regular movements seen in the recent hiking and cutting pattern, towards a prolonged pause before data drives the next cycle.
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