UK borrowers may get some relief from high interest rates today, but it could be a close call.
The Bank of England is due to announce its latest monetary policy decision at noon today, and policymakers might vote to cut rates, economists suggest.
It’s a knife-edge decision, though, with the City split over whether we’ll see the first rate cut since 2020 today; the Bank could leave borrowing costs unchanged until its next meeting in mid-September.
Bank Rate is currently 5.25%, a 16-year high, where it has been pegged for the last year, to fight inflation.Price rises have slowed to normal rates again, with CPI inflation running at the Bank’s 2% target in June, meaning a cut could be justified. The recent slowdown in wage rises could also tee up a rate cut.
However, the BoE may be concerned that service sector inflation, at 5.7%, remains too high to make a rate cut wise.Last night, the US Federal Reserve left US interest rates on hold, but hinted that.
The money markets this morning indicate there’s a 55% chance that the Bank of Engand cuts rates to 5% today, and a 45% chance that it leaves them on hold.
Overnight index swaps are pricing in a 64% probability of a cut.Professor Andrew Angus at Cranfield School of Management says the Bank faces a dilemma:
“The current economic growth presents the Bank of England with an interest rate paradox. One reason for the economy’s stronger than expected performance is the expectation that rates will fall this Thursday, having been stubbornly sat at 5.25% for the last 12 months.
But persistent challenges, such as rising wages and strong service sector prices, could push the Monetary Policy Committee to be more cautious. It’s a Catch-22 situation: if the BoE doesn’t follow through, it could send shockwaves through the market.”
But…S&P Global Market Intelligence expects the BoE to maintain its Bank Rate at 5.25% at tomorrow’s meeting, with the first cut likely to occur in September.
They explain: "We acknowledge it is a close call after several Monetary Policy Committee (MPC) meeting who voted against a proposition for a 25-bp rate cut described their decision as “finely balanced” in the June meeting. This could be interpreted as a sign that they are closer to voting for a rate cut.
However, earnings and inflation developments since last month’s meeting suggest a vote for a rate cut tomorrow would be a risky decision with the fundamentals not yet in place to deliver medium-term price stability. The BoE needs to avoid any collateral damage to its inflation-bursting credentials by cutting rates too soon, resulting in a damaging start stop monetary loosening cycle.”
The agenda • 9am BST: Eurozone manufacturing PMI for July • 9.30am BST: UK manufacturing PMI for July • Noon BST: Bank of England interest rate decision • 12.30pm BST: Bank of England press conference • 1.30pm BST: US weekly jobless claims report
That’s a workplace pension with ProfitShare. This year, we are sharing £163 million of our profits with over 2 million eligible customers. There’s no guarantee ProfitShare can be awarded every year.
… there is a good reason why not to support the Guardian
Not everyone can afford to pay for news right now. That is why we keep our journalism open for everyone to read. If this is you, please continue to read for free.
But if you are able to, then there are three good reasons to support us today.
1
Our quality, investigative journalism is a powerful force for scrutiny at a time when the rich and powerful are getting away with more and more
2
We are independent and have no billionaire owner telling us what to report, so your money directly powers our reporting
3
It doesn’t cost much, and takes less time than it took to read this message
Help power the Guardian’s journalism in this crucial year of news, whether with a small sum or a larger one. If you can, please support us on a monthly basis . It takes less than a minute to set up, and you can rest assured that you're making a big impact every single month in support of open, independent journalism. Thank you.
You are receiving this email because you are a subscriber to Business Today. Guardian News & Media Limited - a member of Guardian Media Group PLC. Registered Office: Kings Place, 90 York Way, London, N1 9GU. Registered in England No. 908396
GSK’s health is improving. Shame about the legal heartburn 
The City of London’s tallest skyscraper could look like a toilet seat in the sky – and that’s not even the worst thing about it 
