Bank of England Interest Rate Cuts: What to Expect

The Bank of England announced a 25 basis point interest rate cut on August 1 and will hold interest rate decisions on September 19, November 7, and December 19. Earlier, many investment banks believed that it would continue to cut interest rates, but they had different opinions on the timing of the cut.

Analysts’ Predictions

Analysts at Bank of America said in a report that the Bank of England is expected to remain cautious in cutting interest rates and may only cut interest rates once again in November this year, followed by four rate cuts in 2025 and then in 2026. “Strong above-trend growth and lingering risks to inflation both suggest that the easing cycle will proceed slowly,” they said.

UBS said that the Federal Reserve is expected to start cutting interest rates in September, and a rate cut of more than 25 basis points may stimulate market confidence. UBS also believes that the Bank of England may implement more interest rate cuts this year, including a possible rate cut in September.

Market Expectations

Most people in the market expect the Bank of England to stay on hold in September and cut interest rates in November, but UBS said a September rate cut should not be completely ruled out. Bank of England Governor Bailey recently said in a speech at the Jackson Hole Symposium that it is “too early” to declare victory over inflation, confirming market expectations that the Bank of England will not cut interest rates again in September.

Markets are betting the Bank of England will be slow to cut interest rates as inflationary pressures remain high and are expected to rise again before the end of the year. However, on September 4, Saunders, a former member of the Bank of England’s Monetary Policy Committee, said that the rate of interest rate cuts will be faster than the market currently expects.

Impact on GBP/USD

Based on the above news, we can see that investment banks have previously had different opinions on the timing of another rate cut by the Bank of England, but Sanders, a former member of the Bank of England’s Monetary Policy Committee, hinted that it will be earlier. In this case, the probability of the Bank of England cutting interest rates in September increases, which will suppress the pound against the dollar.

XTB said that the pound may fall against the dollar if Friday’s US non-farm payrolls report is strong, but any decline is likely to be temporary as the Bank of England will be more cautious in its interest rate cut expectations compared to the Federal Reserve.

GBP/USD Daily Chart

At 9:46 Beijing time on September 5, GBP/USD was 1.3152/53