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Highlights:
- Interest Rate Cut Anticipated: The Bank of England is expected to cut the base rate by 0.25% to 4.75% on Thursday.
- Focus on Future Rate Path: Following the Autumn Budget, markets seek clarity on the BoE’s outlook for interest rate trajectory.
- Potential Shift in Rate Cuts: Recent budget adjustments may slow the pace of anticipated rate cuts, with further delays possible.
The Bank of England is expected to announce a 0.25% cut in its base interest rate on Thursday, potentially lowering it to 4.75% as the Monetary Policy Committee (MPC) meets. This would mark the second cut following an initial reduction in August, with markets strongly anticipating an eight-to-one vote in favor of the move, according to ING Economics. The decision comes amid mounting pressure on the central bank to balance its rate strategy against the fiscal impact of the recent Autumn Budget.
In September, the Bank of England opted to hold interest rates steady after August’s cut, and this upcoming cut aligns with expectations for a tempered easing of the base rate. However, the recent Autumn Budget, which added £70 billion annually in spending, introduces new challenges for the central bank’s policy direction, particularly regarding the future trajectory of rate cuts.
According to Kathleen Brooks, an analyst at XTB, the recent budget won’t immediately affect inflation forecasts but could impact future rate strategies. “While traders and investors are keen to understand the Bank’s stance on the ‘neutral rate’ and eventual interest rate levels, the Bank may choose to withhold specifics,” Brooks explained. This cautious approach could leave some of the market’s questions unanswered, despite increasing demands for clarity.
Market expectations for rate cuts have also seen adjustments in light of the Budget’s spending measures. Where markets previously anticipated up to 97 basis points of cuts by September 2025, the outlook has shifted to 63 basis points in reductions since the Budget’s announcement.
With attention turning to BoE Governor Andrew Bailey’s forthcoming press conference, analysts expect him to address questions on how the budget may shape future policy. ING analysts noted, “While the Budget does not alter the Bank’s decision to cut rates this week, it may prompt reconsideration of the speed and timing of future cuts.” The potential for another rate hold in December could now be on the table if policymakers take a more conservative stance.
This balancing act underscores the BoE’s challenge in navigating inflationary pressures while adjusting policy to account for recent fiscal moves, indicating a cautious outlook on further cuts.
