Zhitong Finance APP has learned that the Bank of England is expected to choose not to cut interest rates at its second consecutive meeting, but to remain patient to assess the impact of its most aggressive policy tightening in decades. Economists and investors generally predict that the Monetary Policy Committee will keep the benchmark interest rate unchanged at 5%. This decision will be announced at 12 noon on Thursday London time (19:00 Beijing time on Thursday), and just before One day, the Federal Reserve had just cut its benchmark interest rate by half a percentage point.
While Bank of England Governor Andrew Bailey is likely to signal to markets that another interest rate cut is possible in November, he may not fully support financial market expectations for a faster pace of easing policy. Last month, the Bank of England’s Monetary Policy Committee voted by a narrow margin of 5 to 4 to cut interest rates, and most economists expect a vote this month to leave rates unchanged by an overwhelming margin of 7 to 2.
Measures of underlying inflation, such as services prices, remained higher than the Bank of England expected. If there are still members who support further lowering borrowing costs, those voices are most likely to come from the more dovish rate setter Swati Dhingra and Deputy Governor Dave Ramsden. New member Alan Taylor’s position is unclear, but his past research has warned that austerity could have long-term headwinds for the economy going forward.
Economists do not expect the Bank of England’s forward guidance to change much, leaving open the possibility of another interest rate cut in November. Bailey told a Jackson Hole conference last month that rate setters need to be cautious because the work to combat inflation is not yet done. However, he also expressed confidence that the effect of the second round of inflation would be smaller than expected.
If the minutes mention that the decision not to cut interest rates was “carefully weighed,” it could be a sign that a rate cut will come sooner. Ben Nabarro, chief U.K. economist at Citigroup, expects the committee to remain cautious, keeping interest rates steady and emphasizing the need to continue to impose monetary restrictions.
Bloomberg economists Dan Hanson and Ana Andrade said their base case is that the Bank of England will cut interest rates again this year, possibly in November, but they do not rule out the central bank being more open to gradually easing policy and cutting interest rates again in December. .
On quantitative tightening, the Monetary Policy Committee will make its annual decision on its pace this month. More than 80% of economists surveyed expect the BoE to continue cutting its balance sheet by £100 billion a year by aggressively selling bonds and halting reinvestment in securities as they mature. However, some analysts believe the central bank may announce a faster taper due to unusually high bond redemptions over the next 12 months.
Currently, the Bank of England is trying to shift from asset purchases to repo operations, which provide cash loans to banks against collateral. Against the backdrop of weakening global economic confidence, investors have increased their bets on the Bank of England speeding up its rate-cutting cycle. Despite data showing the economic recovery is stalling and wage pressures easing, traders are now all but expecting back-to-back interest rate cuts from the Bank of England in November and December, with four or five more cuts expected next year.
The Bank of England is likely to point to a slightly benign outlook for inflation after lower-than-expected inflation in July and August. While the central bank will produce its next full round of forecasts in November, it is likely to say it now expects inflation to fall in the future. The Bank of England had expected price growth in August to be 2.4%, but the actual increase was 2.2%, slightly higher than the Bank of England’s 2% target.
The Bank of England is also likely to highlight signs that the recovery from last year’s recession is weakening. GDP was unexpectedly flat at the start of the third quarter, meaning the economy did not expand in three of the past four reporting months. A stronger pound, currently at its highest level against the dollar since early 2022, threatens to hurt British exports and thereby further hamper economic growth.
– What factors might influence the Bank of England’s decision to hold interest rates steady?
Table of Contents
Bank of England Expected to Hold Interest Rates Steady Amid Aggressive Policy Tightening
The Bank of England is predicted to maintain its benchmark interest rate at 5% in its upcoming meeting, defying expectations of a cut, as it takes a cautious approach to assessing the impact of its most aggressive policy tightening in decades. The Monetary Policy Committee (MPC) is expected to keep interest rates unchanged, despite the Federal Reserve’s recent decision to cut its benchmark interest rate by half a percentage point.
Patience Amid Policy Tightening
The Bank of England’s governor, Andrew Bailey, is likely to signal to markets that another interest rate cut is possible in November, but may not fully support financial market expectations for a faster pace of easing policy. The MPC voted by a narrow margin of 5 to 4 to cut interest rates last month, and most economists expect a vote this month to leave rates unchanged by an overwhelming margin of 7 to 2.
Underlying Inflation Concerns
Measures of underlying inflation, such as services prices, remained higher than the Bank of England expected. This may lead some MPC members, including the more dovish rate setter Swati Dhingra and Deputy Governor Dave Ramsden, to argue for further easing of borrowing costs. New member Alan Taylor’s position is unclear, but his past research has warned that austerity could have long-term headwinds for the economy going forward.
Forward Guidance and Future Rate Cuts
Economists do not expect the Bank of England’s forward guidance to change much, leaving open the possibility of another interest rate cut in November. Bailey has expressed confidence that the effect of the second round of inflation would be smaller than expected, but also emphasized the need to be cautious. If the minutes mention that the decision not to cut interest rates was “carefully weighed,” it could be a sign that a rate cut will come sooner.
Quantitative Tightening and Balance Sheet Reduction
The Monetary Policy Committee will also make its annual decision on the pace of quantitative tightening this month. Over 80% of economists surveyed expect the BoE to continue cutting its balance sheet by £100 billion a year by aggressively selling bonds and halting reinvestment in securities as they mature. However, some analysts believe the central bank may announce a faster taper due to unusually high bond redemptions over the next 12 months.
Global Economic Confidence and Market Expectations
Against the backdrop of weakening global economic confidence, investors have increased their bets on the Bank of England speeding up its rate-cutting cycle. Despite data showing the economic recovery is stalling and wage pressures easing, traders are now all but expecting back-to-back interest rate cuts from the Bank of England in November and December, with four or five more cuts expected next year.
Inflation Outlook and Future Forecasts
The Bank of England is likely to point to a slightly benign outlook for inflation after lower-than-expected inflation in July and August. While the central bank will produce its next full round of forecasts in November, it is likely to say it now expects inflation to fall in the future. The Bank of England had expected price growth in August to be 2.4%, but the actual increase was 2.2%, signaling a potential slowdown in inflation.
Conclusion
the Bank of England is expected to hold interest rates steady in its upcoming meeting, as it takes a cautious approach to assessing the impact of its most aggressive policy tightening in decades. While the MPC may keep the door open for future rate cuts, the central bank’s decision will be closely watched by markets and investors, who are eagerly anticipating the next move in the Bank of England’s monetary policy.
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Title: Bank of England Expected to Hold Interest Rates Steady Amid Aggressive Policy Tightening
Description: The Bank of England is predicted to maintain its benchmark interest rate at 5% in its upcoming meeting, defying expectations of a cut, as it takes a cautious approach to assessing the impact of its most aggressive policy tightening in decades.
Keywords: Bank of England, Interest Rates, Monetary Policy Committee, Policy Tightening, Inflation, Quantitative Tightening, Balance Sheet Reduction.
– Why is the Bank of England expected to hold interest rates steady despite market predictions?
Bank of England Expected to Hold Interest Rates Steady, Defying Market Expectations
The Bank of England is likely to surprise markets by keeping interest rates unchanged at 5% at its second consecutive meeting, contradicting expectations of a rate cut. This decision will be announced at 12 noon on Thursday, London time, just a day after the Federal Reserve’s decision to cut its benchmark interest rate by half a percentage point.
Assessing the Impact of Aggressive Policy Tightening
Economists and investors generally predict that the Monetary Policy Committee will keep the benchmark interest rate steady, as the bank assesses the impact of its most aggressive policy tightening in decades. Bank of England Governor Andrew Bailey is likely to signal to markets that another interest rate cut is possible in November, but may not fully support the market’s expectations for a faster pace of easing policy.
Underlying Inflation Remains Higher than Expected
Measures of underlying inflation, such as services prices, remain higher than the Bank of England expected. This could lead to some members of the Monetary Policy Committee supporting further rate cuts to combat borrowing costs. However, most economists expect a vote this month to leave rates unchanged by an overwhelming margin of 7 to 2.
Forward Guidance and Interest Rate Cuts
Economists do not expect the Bank of England’s forward guidance to change much, leaving open the possibility of another interest rate cut in November. Bailey has expressed confidence that the effect of the second round of inflation would be smaller than expected, but also emphasized the need to be cautious.
Quantitative Tightening and Balance Sheet Reduction
The Monetary Policy Committee will make its annual decision on the pace of quantitative tightening this month. More than 80% of economists surveyed expect the BoE to continue cutting its balance sheet by £100 billion a year by aggressively selling bonds and halting reinvestment in securities as they mature.
Economic Recovery Stalls, Wage Pressures Ease
Data showing the economic recovery is stalling and wage pressures easing have led traders to expect back-to-back interest rate cuts from the Bank of England in November and December, with four or five more cuts expected next year. However, the Bank of England is likely to point to a slightly benign outlook for inflation after lower-than-expected inflation in July and August.
Factors Influencing the Bank of England’s Decision
Several factors may influence the Bank of England’s decision to hold interest rates steady, including:
- Underlying Inflation: Measures of underlying inflation, such as services prices, remain higher than expected.
- Economic Recovery: Data showing the economic recovery is stalling and wage pressures easing.
- Global Economic Confidence: Weakening global economic confidence may lead investors to increase their bets on the Bank of England speeding up its rate-cutting cycle.
- Interest Rate Cuts: The Bank of England’s forward guidance may not change much, leaving open the possibility of another interest rate cut in November.
- Quantitative Tightening: The pace of quantitative tightening and balance sheet reduction may also influence the Bank of England’s decision.
Conclusion
The Bank of England’s decision to hold interest rates steady is likely to surprise markets, but it is a cautious approach to assessing the impact of its aggressive policy tightening. With underlying inflation remaining higher than expected and the economic recovery stalling, the bank is likely to point to a slightly benign outlook for inflation and highlight signs of weakening economic growth.
