Bank of England Interest Rate Decision: What to Expect

The Bank of England is set to make an interest rate decision on September 19 at 19:00 Beijing time. According to Knut A. Magnussen, senior economist at the Dutch Bank, the British economy is on a steady upswing, which may lead to a slower interest rate cut than expected.

Magnussen stated that the Bank of England would cut interest rates again in November and at “every other” meeting, resulting in a gradual decrease. This prediction differs from Goldman Sachs’ forecast, which suggests the Bank of England will launch a series of interest rate cuts in November.

Interest Rate Forecast

The Bank of England interest rate forecast is as follows:

Goldman Sachs economists believe the market is underestimating the magnitude of the upcoming interest rate cut, which could lead to lower lending rates in the UK and put pressure on the pound and mortgage rates.

The divergence in views between the Dutch central bank and Goldman Sachs lies in their different expectations for services sector inflation and wages. While Goldman Sachs thinks they will cool quickly, the Dutch central bank believes they will decline slowly, keeping the Bank of England on alert.

Market Expectations

Money market pricing shows investors want bank interest rates to drop to around 3.25%, which is 75 basis points lower than the terminal rate expected by the Dutch Bank. However, Magnussen believes that a stronger labor market and increased economic activity will limit the extent of interest rate cuts.

“We believe that a stronger labor market and increased economic activity will limit the extent of interest rate cuts. Lower (services sector) inflation and wage growth will provide room for rate cuts, which seems reasonable, but as long as the UK economy avoids recession, we believe interest rates will only fall to around 4%,” Magnussen said.

Impact on Sterling and Mortgage Rates

If the Dutch central bank’s forecasts are correct, sterling and mortgage rates are expected to be supported by UK interest rate differentials for longer.

ING analyst Francesco Pesole also shared his views on the Bank of England’s decision and the outlook for the pound. Pesole stated that the pound was likely to strengthen as the Bank of England was unlikely to cut interest rates this week.

Pesole added that British economic data hindered market expectations for the Bank of England to cut interest rates as sharply as the Federal Reserve, which means that the pound may extend its gains against the dollar.

GBP/USD Daily Chart

At 9:20 Beijing time on September 16, GBP/USD was trading at 1.3140/41.