Will the BoE Cut? Not

Today at 12:00, the BoE is expected to make its final monetary policy announcement. The Bank Rate is expected to remain at 4.25% with the adoption of BST. This is expected hold after a quarter-point cut in May, and the consensus among economists and markets is that any further rate cuts will be postponed until August at the latest. Two outside members of the Monetary Policy Committee (MPC) are expected to vote 7 times for a rate cut, while the majority will vote in favor of keeping current rates.

There are multiple significant factors that influence this action, primarily the elevated inflation rate in the UK, which stood at 3.4% in May, far exceeding the BoE's 2% target. The rise in energy and food prices can be attributed to recent geopolitical tensions, such as the Israel-Iran conflict and rising oil prices, which have intensified these inflationary concerns. Additionally, Even though the UK economy contracted in April and is now showing signs of weakness, with sluggish wage growth and a cooling labor market, the BoE may prioritize clear proof that disinflation endures before further rate cuts.

In the coming days, the BoE is likely to reaffirm its commitment to gradual and careful monetary relaxation, stressing that future decisions will be influenced by data and evaluated on a meeting-by-meeting basis. At present, markets are predicting the next rate cut in August and could see another cut down by the end of 2025, subject to further inflation losses. A cautionary message has persisted, as policymakers confront persistent inflation, weak economic growth and ongoing global uncertainties.