Zhitong Finance APP has learned that the Bank of England will announce an interest rate decision on September 19 (Thursday). Although the central bank seems to be ignoring doubts and insisting on its tentative interest rate cut policy, more and more investors believe that they need to take More radical action.
Bank of England Governor Bailey and his colleagues are widely expected to delay another interest rate cut on Thursday, but fund managers at Abrdn Investment Management Ltd., Aviva Investors and Allianz Global Investors are betting on a slowdown in economic growth and the budget. With taxes raised, this caution won’t last long.
Strategists at investment banks including Goldman Sachs, HSBC and UBS agreed, arguing that officials will soon be forced to step up their response as UK economic growth continues to weaken.
But with economists expecting data this week to show a resurgence in services-sector inflation, cautious policymakers are unlikely to change their tune – even after the European Central Bank cut borrowing costs for a second time last week, while the Federal Reserve is expected to after cutting borrowing costs for the first time on Wednesday.
The market currently expects the Bank of England to keep interest rates unchanged in its decision on September 19 and cut interest rates by 25 basis points in November and December. Bhanu Baweja, chief strategist at UBS in London, believes it is only a matter of time before British officials stop hesitating and respond more urgently to the dangers facing the economy.
“I think this is a place where tighter monetary policy is going to have an impact faster than other places like Europe and certainly the United States,” he said.
The Bank of England did signal further interest rate cuts in August, when it announced its first rate cut in more than four years, to 5%, but insisted there was no rush to cut rates as there was no threat of a recession or spike in unemployment. .
Instead, the MPC said it would proceed with caution and take decisions “meeting by meeting” amid lingering underlying inflationary pressures.
Dan Hanson and Ana Andrade of Bloomberg Economics said: “The Bank of England is likely to keep interest rates unchanged at its September meeting, indicating that it is not yet convinced that inflation has been defeated and intends to adopt cautious easing policy.”
The market expects that by the beginning of 2026, the Bank of England will cut interest rates by 25 basis points seven times, with the final interest rate reaching 3.25%.
The current market consensus is that the Bank of England will act more slowly than the Federal Reserve and the European Central Bank, which has led to higher borrowing costs in the UK than in other countries.
George Buckley, chief European economist at Nomura Securities, believes the Bank of England will only cut interest rates once per quarter, with the next cut in November. He and many of his colleagues don’t think officials will change the guidance this week.
The reason for this caution is the unstable outlook for consumer price growth.
Economists predict that data released on Wednesday will show services sector inflation jumped to 5.6% in August. The Bank of England estimates that the current headline indicator of 2.2% will rebound to 2.7% in December.
UK wage growth remains above the 2% inflation target at 5.1%, with data released last week showing a strengthening in the labor market.
But Daniela Russell, HSBC’s head of UK rates strategy, is not convinced by the view that continued rise in UK consumer prices will ultimately hinder monetary easing.
“We would question this interpretation,” she wrote in a note. “If the labor market continues to be as accommodative as before, the Bank of England may tolerate a slow return of inflation to target and therefore cut rates more sharply than expected. “
Gross domestic product (GDP) data released last week may support this view. Data showed the economy stalled in July, meaning the UK had no growth in three of the last four months of data.
Aviva multi-asset portfolio manager Harriet Ballard said: “If the Bank of England delays easing policy, the economy will decelerate significantly, suggesting faster and deeper interest rate cuts later. We still see risks to the UK economy as household consumption remains weak, Mortgage servicing costs are likely to rise and the labor market is cooling.”
Goldman Sachs analysts, including chief European economist Sven Jari Stehn, said in a note last week that they expect the Bank of England to cut interest rates in a row starting in November, rather than every other meeting, eventually lowering the benchmark rate. to 3%. UBS’s Baweja has the same terminal rate forecast.
More and more investors are beginning to think this way. UK government bonds have risen this month, outperforming their euro zone peers, as markets see a greater chance of two more rate cuts from the Bank of England this year.
The policy-sensitive two-year Treasury bond yield once fell more than 30 basis points to 3.80%. The market has fully priced in a 25 basis point interest rate cut in November, and the probability of another rate cut in December has risen from 50% at the beginning of this month to more than 90% currently.
UBS said its bullish forecast on two-year gilts has been one of the hottest trades in the past few months.
Abrdn said last month it was “significantly” overweight British government bonds relative to European and U.S. government bonds due to inaccurate money market expectations for British monetary policy. Aviva is bullish, while companies such as Federated Hermes are also considering adding to their holdings.
In addition to the deteriorating economic backdrop, investors were encouraged by the prospect that Chancellor of the Exchequer Rachel Reeves could raise taxes in her Oct. 30 budget as she attempts to fill a 22 billion pound ($28.9 billion) Public finance black hole. This will mean fiscal austerity.
Orla Garvey, senior fixed income portfolio manager at Federated Hermes, said: “We are going to get what is effectively a tight budget package at the end of October. We are not fully reflecting the economic slowdown that I think we are going to face.”
– What is the current expectation for the Bank of England’s interest rate decision on September 19?
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Bank of England Interest Rate Decision: Will Caution Give Way to Urgent Action?
The Bank of England is set to announce its interest rate decision on September 19, with many expecting a cautious approach from policymakers. However, a growing number of investors believe that more radical action is needed to address the deteriorating economic backdrop in the UK.
Expectations of a Rate Cut Delay
Despite widespread expectations of a rate cut delay, fund managers at Abrdn Investment Management Ltd., Aviva Investors, and Allianz Global Investors are betting on a slowdown in economic growth and rising taxes, which will soon force the Bank of England to take more drastic measures. Strategists at investment banks such as Goldman Sachs, HSBC, and UBS agree, arguing that officials will soon be forced to step up their response as UK economic growth continues to weaken.
Market Expectations
The market currently expects the Bank of England to keep interest rates unchanged in its decision on September 19 and cut interest rates by 25 basis points in November and December. However, some investors believe that the Bank of England will need to take more urgent action to address the economic challenges facing the UK. Bhanu Baweja, chief strategist at UBS in London, believes that it is only a matter of time before British officials stop hesitating and respond more urgently to the dangers facing the economy.
Economic Indicators
While economists expect data this week to show a resurgence in services-sector inflation, the Bank of England is likely to be cautious due to the unstable outlook for consumer price growth. UK wage growth remains above the 2% inflation target at 5.1%, with data released last week showing a strengthening in the labor market. However, some investors believe that the Bank of England may tolerate a slow return of inflation to target and therefore cut rates more sharply than expected.
GDP Data
Gross domestic product (GDP) data released last week showed that the economy stalled in July, meaning the UK had no growth in three of the last four months of data. This has led some investors to believe that the Bank of England will need to take more decisive action to address the economic slowdown.
Investor Sentiment
More and more investors are beginning to think that the Bank of England will need to take more radical action to address the economic challenges facing the UK. UK government bonds have risen this month, outperforming their euro zone peers, as markets see a greater chance of two more rate cuts from the Bank of England this year. The policy-sensitive two-year Treasury bond yield has once fallen more than 30 basis points to 3.80%. The market has fully priced in a 25 basis point interest rate cut in November, and the probability of another rate cut in December has risen from 50% at the beginning of this month to more than 90% currently.
Conclusion
The Bank of England’s interest rate decision on September 19 is likely to be closely watched by investors and economists alike. While policymakers may take a cautious approach, many investors believe that more radical action is needed to address the economic challenges facing the UK. With economic growth slowing and inflation remaining above target, the Bank of England may soon be forced to take more decisive action to support the economy.
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What factors are influencing the Bank of England’s interest rate decision this September?
Bank of England Interest Rate Decision: Will Caution Prevail or Will Action be Taken?
The Bank of England is set to announce its interest rate decision on September 19, amidst growing concerns about the UK’s economic growth and inflation. Despite expectations of a cautious approach, many investors believe that more drastic action is needed to address the country’s economic woes.
A Delay in Rate Cuts?
Governor Andrew Bailey and his colleagues are widely expected to delay another interest rate cut, citing doubts about the economic outlook. However, fund managers at Abrdn Investment Management Ltd., Aviva Investors, and Allianz Global Investors are betting on a slowdown in economic growth and higher taxes, which may soon force the central bank to take action.
Economists Weigh In
Strategists at investment banks, including Goldman Sachs, HSBC, and UBS, agree that officials will soon be forced to step up their response as UK economic growth continues to weaken. However, with economists expecting data to show a resurgence in services-sector inflation, cautious policymakers are unlikely to change their tune.
Market Expectations
The market currently expects the Bank of England to keep interest rates unchanged in its decision on September 19 and cut interest rates by 25 basis points in November and December. Bhanu Baweja, chief strategist at UBS in London, believes that it is only a matter of time before British officials stop hesitating and respond more urgently to the dangers facing the economy.
Interest Rate Cuts on the Horizon
The Bank of England signaled further interest rate cuts in August, but insisted that there was no rush to cut rates as there was no threat of a recession or spike in unemployment. Instead, the Monetary Policy Committee (MPC) said it would proceed with caution and take decisions “meeting by meeting” amid lingering underlying inflationary pressures.
Inflation Concerns
Economists predict that data released on Wednesday will show services sector inflation jumped to 5.6% in August, while UK wage growth remains above the 2% inflation target at 5.1%. The Bank of England estimates that the current headline indicator of 2.2% will rebound to 2.7% in December.
GDP Data Weighs In
Gross domestic product (GDP) data released last week showed the economy stalled in July, meaning the UK had no growth in three of the last four months of data. This could support the view that the Bank of England may tolerate a slow return of inflation to target and therefore cut rates more sharply than expected.
Investors Call for Action
Aviva multi-asset portfolio manager Harriet Ballard said, “If the Bank of England delays easing policy, the economy will decelerate significantly, suggesting faster and deeper interest rate cuts later. We still see risks to the UK economy as household consumption remains weak, mortgage servicing costs are likely to rise, and the labor market is cooling.”
Goldman Sachs analysts, including chief European economist Sven Jari Stehn, expect the Bank of England to cut interest rates in a row starting in November, eventually lowering the benchmark rate to 3%. UBS’s Baweja has the same terminal rate forecast.
As the Bank of England prepares to announce its interest rate decision, investors are increasingly calling for more drastic action to address the UK’s economic concerns. Will caution prevail, or will the central bank take a more urgent approach to address the country’s economic woes? Only time will tell.
Keywords: Bank of England, interest rate decision, economic growth, inflation, monetary policy, interest rate cuts, GDP data, UK economy.
Meta Description: The Bank of England is set to announce its interest rate decision on September 19. Will caution prevail, or will the central bank take more drastic action to address the UK’s economic concerns? Read more to find out.
Header Tags:
H1: Bank of England Interest Rate Decision: Will Caution Prevail or Will Action be Taken?
H2: A Delay in Rate Cuts?
H2: Economists Weigh In
H2: Market Expectations
H2: Interest Rate Cuts on the Horizon
H2: Inflation Concerns
