Rate Watch: What the Central Bank’s 7-Day Base Rate Decision Means for the Market

The Bank of England decides the base interest rate for the next 7 days… “Observing a 90% market cut”

(London = Yonhap News) Reporter Kim Ji-yeon = The Bank of England (BOE), England’s central bank, will hold a monetary policy committee meeting on the 7th (local time) to decide on the base interest rate.
According to the Financial Times (FT) and Bloomberg on the 5th (local time), the interest rate futures market reflected a 90% chance that the BOE would lower its base interest rate by 0.25 percentage points to 4.75% per annum.
Immediately after the British Labor Party government announced its easing fiscal policy on the 30th of last month, the forecast for a cut was reduced to around 80%.
Previously, in August this year, BOE lowered the interest rate by 0.25 percentage points for the first time in over four years since March 2020, at the start of the COVID-19 pandemic, and maintained it at 5.0% in September.
Compared to other developed countries such as the US and Europe, the rate of interest rate cuts in the UK has been slower and various economic indicators have shown signs of stabilization, so there is a general view that the rate will be lowered in November.
Last month, the consumer price inflation rate also fell to 1.7%, the lowest annual rate since April 2021, and the core wage growth rate from June to August was 4.9%, the lowest in over two years.
Market attention is focused on how much interest rates will be lowered in the future and what message Governor Andrew Bailey will give regarding the future direction of monetary policy.
The market reflects the possibility of further cuts in December as less than 20%. This is because the prospects for future inflation rates have increased due to the government’s budget plan which increases taxes, borrowing and spending.
Jefferies economist Modupe Adegbembo analyzed, “(Given the extent of fiscal easing), the likelihood that the BOE will skip the December cut has increased, and Governor Bailey’s hopes of being more active in lowering interest rates have break them down.”
Bloomberg pointed out that the BOE Monetary Policy Committee being held two days after the US presidential election posed a ‘communication challenge’ for Governor Bailey.
“It could be the worst timing for them as they have so much room to manoeuvre,” said Andrew Goodwin, chief UK economist at Oxford Economics “Any recent market movements will not be included in the minutes of this committee meeting.”
cherora@yna.co.kr
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