The Monetary Policy Committee is widely expected to reduce the Base Rate by 0.25% today.
Steve Matthews, investment director, liquidity at Canada Life Asset Management commented: “Following the recent upheaval in bond markets after last week’s Budget, we expect a close 5-4 vote in favour of a 25 basis point cut at Thursday’s Monetary Policy Committee (MPC) meeting.
“Since the last meeting in September, when rates were held, economic growth and inflation data have softened, though not enough to shift the MPC’s current cautious approach.”
However, he noted: “After Thursday’s meeting, we don’t expect fireworks anytime soon with the MPC settling into a quarterly cutting cycle, with the next cut expected in February.
“This pause will allow the Bank of England time to assess the economic impact of increased Government borrowing announced in the Budget. In fact, markets have already tempered expectations, now forecasting two or three rate cuts in 2025, down from earlier projections of four or five.”
Chris Arcari, head of capital market at Hymans Robertson said despite the larger-than-expected rise in net spending unveiled in the autumn Budget, and the OBR’s forecast of higher near-term inflation as a result, the Bank of England (BoE) is expected to lower rates 0.25%
He explained: “Headline inflation came in at a below-target pace of 1.7% year-on-year in September and while still elevated, service sector and wage inflation are coming down more quickly than the BoE anticipated in their previous monetary policy report.
“This opens the door for the BoE to lower interest rates, while still maintaining a relatively restrictive policy stance – that is, real short-term rates would remain materially positive even after a 0.25% p.a. cut.
“Looking further out, the front-loaded nature of the spending and the OBR’s forecast impact on near-term growth and inflation has seen the market shift to expect a slower pace of rate cuts from the Bank of England.”
