Bank of England: Two More Cuts Now Predicted
- Written by: Gary Howes
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The Bank of England lays the groundwork for further rate reductions.
The Bank's Monetary Policy Committee voted 5-4 to hold Bank Rate at 3.75%, an outcome that was closer than traders had anticipated.
The close call reveals momentum building for a March cut, with Bank Governor Andrew Bailey likely to side with the 'cutters' at the next meeting.
But, the impact of Thursday's decision reverberates beyond March as money market pricing (OIS) shows the market is now priced for 50 basis points of rate cuts (two full cuts) by year-end, up from 35bp.
"So long as the data continues to follow recent trends - weaker employment, lower wage growth, easing inflation - then we think a March cut is likely to be followed by another in June," says James Smith, Developed Markets Economist at ING Bank.
The Bank issued new economic forecasts and analysis showing wage growth is trending down and is now consistent with the 2% inflation target.
ING thinks inflation will fall even further, forecasting a decline to 1.8% in April and that it will stay around 2% through the spring/summer.
Progress towards these targets should become evident before the Bank's March meeting, which will prompt Governor Andrew Bailey to side with those MPC colleagues wanting to cut interest rates.
"Bailey and Mann can now both be considered potential tie-breaking votes for a March cut, having exhibited dovish tilts in their paragraphs," says Julie Ioffe, European Macro Strategist at TD Securities.
The Bank's new forecasts also show in-house economists lowered the GDP forecast for 2026 from 1.2% to just 0.9%.
This would be slower than last year's estimated 1.4% and, more worryingly, a full half a percent lower than the OBR’s forecast of 1.4% for 2026 which was baked into the last Budget.
Bank staff also raised their forecasts for the unemployment rate for every year from 2026 to 2028.
