The closeness of this week\u2019s vote to cut rates, with four out of nine policymakers wanting to hold rates at 4.25%<\/a>, also appears to make further cuts in 2025 less likely.<\/p>\n The money markets are now indicating that the next cut is not full priced in until February 2026. This morning, before the Bank\u2019s decision to cut rates to 4% at noon, the City was expecting one cut today and a second by December.<\/p>\n Capital Economics have told clients that the Bank appears \u201cin no rush to cut again soon\u201d.<\/p>\n Ruth Gregory, their deputy chief UK economist, says:<\/p>\n Although the Bank of England cut interest rates today by 25 basis points (bps), from 4.25% to 4.00%, it showed some signs that it may cut rates slower and\/or not as far as our forecast of a decline to 3.00% in 2026.<\/p>\n We are sticking to our view that interest rates will fall further than most expect. But we\u2019ve become a bit less confident in our forecast that the next 25bps rate cut will happen in November.<\/p>\n The money markets are now predicting two more rate cuts by the end of 2026, which would bring rate down to 3.5%. Investors will have noted governor Andrew Bailey\u2019s warning against cutting rates \u2018too quickly\u2019<\/a>.<\/p>\n Economics professor Jonathan Haskel, a former MPC policymaker, suggests the Bank\u2019s concerns about inflation signal fewer future cuts than the market expecting<\/p>\n Fascinating split on the MPC @bankofengland<\/a> today. No second votes during my time! Reminder: splits are a feature not a bug, individuals should have different views. On the economics, as one still worried about inflationary pressures…<\/p>\n \u2014 Jonathan Haskel (@haskelecon) August 7, 2025<\/a><\/p>\n …equally fascinating MPR: p.11 on service price and wage inflation…\u201dUK services inflation has\u2026not yet fully normalised to a target-consistent path…pay growth …higher than can be explained by its usual economic determinants.\u201d…https:\/\/t.co\/i64gp1JfEK<\/a><\/p>\n \u2014 Jonathan Haskel (@haskelecon) August 7, 2025<\/a><\/p>\n To me, signals fewer future cuts than the market expecting.<\/p>\n \u2014 Jonathan Haskel (@haskelecon) August 7, 2025<\/a><\/p>\n Derek Halpenny, head of research for global markets at MUFG, says the Bank appears more concerned about the risks to inflation:<\/p>\n \u201cBased on the voting composition in this MPC meeting (5-4 versus 5-2-2 in May) and other elements of today\u2019s announcement this is obviously a more hawkish policy announcement and we have seen some of the expectations for a Nov rate cut taken out of the market.<\/p>\n Yesterday, the implied Nov pricing assuming a cut today was about 18bps…. that\u2019s dropped to about 12bps now.<\/p>\n It\u2019s clear that the pick-up in the estimate of inflation peaking at 4.0% has made some uncomfortable with the idea of continued steady easing.<\/p>\n Share<\/a><\/p>\n Updated at\u00a009.44 EDT<\/p>\n Key events<\/p>\n Show key events only<\/p>\n Please turn on JavaScript to use this feature<\/p>\n Economists at Investec say their confidence that the Bank of England<\/a> will cut interest rates again in November has \u201cdiminished\u201d.<\/p>\n They told clients:<\/p>\n For this to play out, the burden of proof has shifted: for the MPC to stick to the once-per-quarter pace of 25bp rate cuts, there will need to be evidence that disinflation in the service sector is continuing, not just that the jobs market is loosening.<\/p>\n Markets have reacted accordingly, with short-term rate expectations and sterling pushing higher. As of yesterday, it was priced as a near-certainty that the Bank rate would end 2025 at 3.75%. Now, the market is less sure, and 2y yields are 5bps higher at the time of writing. GBP [the pound], meanwhile, has strengthened by 0.5% against the US dollar and 0.6% against the euro at present. This seems an eminently justifiable reaction to us.<\/p>\n Share<\/a>Another UK rate cut this year no longer fully priced in<\/p>\n The chances of another cut to UK interest rates this year, to 3.75%, have fallen today, following the Bank of England\u2019s warning that inflation will rise higher than expected this year<\/a>.<\/p>\n The closeness of this week\u2019s vote to cut rates, with four out of nine policymakers wanting to hold rates at 4.25%<\/a>, also appears to make further cuts in 2025 less likely.<\/p>\n The money markets are now indicating that the next cut is not full priced in until February 2026. This morning, before the Bank\u2019s decision to cut rates to 4% at noon, the City was expecting one cut today and a second by December.<\/p>\n Capital Economics have told clients that the Bank appears \u201cin no rush to cut again soon\u201d.<\/p>\n Ruth Gregory, their deputy chief UK economist, says:<\/p>\n Although the Bank of England cut interest rates today by 25 basis points (bps), from 4.25% to 4.00%, it showed some signs that it may cut rates slower and\/or not as far as our forecast of a decline to 3.00% in 2026.<\/p>\n We are sticking to our view that interest rates will fall further than most expect. But we\u2019ve become a bit less confident in our forecast that the next 25bps rate cut will happen in November.<\/p>\n The money markets are now predicting two more rate cuts by the end of 2026, which would bring rate down to 3.5%. Investors will have noted governor Andrew Bailey\u2019s warning against cutting rates \u2018too quickly\u2019<\/a>.<\/p>\n Economics professor Jonathan Haskel, a former MPC policymaker, suggests the Bank\u2019s concerns about inflation signal fewer future cuts than the market expecting<\/p>\n Fascinating split on the MPC @bankofengland<\/a> today. No second votes during my time! Reminder: splits are a feature not a bug, individuals should have different views. On the economics, as one still worried about inflationary pressures…<\/p>\n \u2014 Jonathan Haskel (@haskelecon) August 7, 2025<\/a><\/p>\n …equally fascinating MPR: p.11 on service price and wage inflation…\u201dUK services inflation has\u2026not yet fully normalised to a target-consistent path…pay growth …higher than can be explained by its usual economic determinants.\u201d…https:\/\/t.co\/i64gp1JfEK<\/a><\/p>\n \u2014 Jonathan Haskel (@haskelecon) August 7, 2025<\/a><\/p>\n To me, signals fewer future cuts than the market expecting.<\/p>\n \u2014 Jonathan Haskel (@haskelecon) August 7, 2025<\/a><\/p>\n Derek Halpenny, head of research for global markets at MUFG, says the Bank appears more concerned about the risks to inflation:<\/p>\n \u201cBased on the voting composition in this MPC meeting (5-4 versus 5-2-2 in May) and other elements of today\u2019s announcement this is obviously a more hawkish policy announcement and we have seen some of the expectations for a Nov rate cut taken out of the market.<\/p>\n Yesterday, the implied Nov pricing assuming a cut today was about 18bps…. that\u2019s dropped to about 12bps now.<\/p>\n It\u2019s clear that the pick-up in the estimate of inflation peaking at 4.0% has made some uncomfortable with the idea of continued steady easing.<\/p>\n Share<\/a><\/p>\n Updated at\u00a009.44 EDT<\/p>\n Over in the US, there are new signs that America\u2019s jobs market is weakening.<\/p>\n Recurring applications for unemployment benefits have surged to the highest since November 2021, the latest data shows.<\/p>\n Continuing claims, which are a proxy for the number of people receiving benefits, rose by 38,000 to 1.97 million in the week ended July 26, according to US Department of Labor.<\/p>\n More Americans filed new claims for unemployment support too \u2013 the number of initial claims rose by 7,000 last week to 226,000.<\/p>\n Share<\/a>Analysis: Bank\u2019s base rate gift signals wage rise conflict is on the way A reduction in interest rates by the Bank of England<\/a> should rank as a joyful summer gift to borrowers weighed down by the high cost mortgages and loans.<\/p>\n Yet the latest quarter-point cut to the cost of borrowing, from 4.25% to 4%<\/a>, is laced with so many warnings, any celebration will be muted.<\/p>\n Most prominently, the Bank\u2019s monetary policy committee (MPC) said in its latest assessment of the UK\u2019s economic outlook that inflation is on course to peak at a higher rate in the second half of this year than previously forecast.<\/p>\n Price spikes in food and energy prices and the higher cost of business services will push the consumer prices index to 4% in September, it said, before falling only slowly to an average of 3% in a year\u2019s time.<\/p>\n The MPC made clear that workers who sought to outrun this fresh inflationary surge with higher wage claims would be likely to persuade the committee to bring its policy of slow and steady credit loosening to a grinding halt\u2026.<\/p>\n Share<\/a>ING predict another rate cut in November<\/p>\n My inbox continues to groan under the weight of reaction to the Bank of England\u2019s interest rate decision.<\/p>\n And I spy ING explaining that the Bank of England has sounded considerably more hawkish than expected in today\u2019s minutes.<\/p>\n ING says:<\/p>\n The Bank has included a new line in its statement, stating that \u201cthe restrictiveness of monetary policy has fallen as Bank Rate has been reduced\u201d. A statement of the obvious, perhaps, but markets have taken it as a cue to price a higher end point for this easing cycle. There are now barely two cuts priced by next summer, and no further moves this year.<\/p>\n Policymakers are evidently becoming wary about echoes of 2022, where a spike in food and energy prices prompted a much longer-lasting episode of higher inflation.<\/p>\n Despite that, ING are sticking with their forecast that the Bank cuts rates again in November and twice more next year. But it could rethink, if inflation rises more than expected or the recent falls in private-sector employment start to ease off.<\/p>\n Share<\/a><\/p>\n The press conference wraps up with Andrew Bailey saying he \u201cstrongly supports\u201d the current government\u2019s focus on growth and productivity, and its predecessor\u2019s focus on this too.<\/p>\n Bailey says it is critically important for lots of reasons to lift the potential growth rate of the economy, which means productivity growth.<\/p>\n Share<\/a><\/p>\n Q: Won\u2019t the UK public be confused that you have cut interest rates today, give the Bank\u2019s concerns about inflation? And won\u2019t your forecast that inflation will hit 4% lead to higher wage demands, my colleague Phillip Inman asks.<\/p>\n Deputy governor Dave Ramsden replies that the underlying disinflation process is continuing, as wages have risen by less than expected since May.<\/p>\n He adds that the Bank thinks policy is still restrictive, even though it has cut interest rates today.<\/p>\n Rates are much, much lower in the euro area, he adds [at just 2%<\/a>].<\/p>\n Share<\/a><\/p>\n Bank of England\u2019s governor Andrew Bailey has told reporters it is important to consider price stability when setting the minimum wage.<\/p>\n Bailey explained:<\/p>\n \u201cI think it\u2019s important that inflation – price stability, actually – and the benefits of that for the cost of living feature in the set of issues … that are taken into account in considering that judgment.\u201d<\/p>\n Earlier this week, the Low Pay Commission estimated that the national living wage would need to rise by 4.1%, to \u00a312.71, to prevent it falling below two-thirds of median earnings.<\/p>\n A decision has not been made yet, though, so Bailey won\u2019t comment on what should happen.<\/p>\n Share<\/a><\/p>\n Updated at\u00a008.51 EDT<\/p>\n Q: What does today\u2019s historic second vote on interest rates say about the Monetary Policy Committee?<\/p>\n [Reminder: the committee split 4-4-1, with four policymaker voting to hold rates, four voting for a quarter-point cut, and one for a half-point cut].<\/p>\n Andrew Bailey says there is a provision for him to have a casting vote if there is a split.<\/p>\n But as the balance on the commitee was clearly towards a cut, it was better to have a second vote.<\/p>\n Bailey says:<\/p>\n Even though we had two votes\u2026 what really matters is the decision and the outcome. And that\u2019s clear.<\/p>\n Share<\/a><\/p>\n Q: What impact will today\u2019s tariffs from Donald Trump have on the UK economy?<\/p>\n Bailey replies that there is an \u201cenormous amount of news coming from the world economy\u201d (can confirm!), leading to high uncertainty.<\/p>\n Tariff levels are \u201csettling\u201d at higher levels than we\u2019ve seen for a long time, the BoE governor adds [the highest since the 1930s in the US<\/a>].<\/p>\n But ultimately, he adds, domestic factors are the primary driver for UK inflation.<\/p>\n Share<\/a>Bailey: Fed chair Powell is ‘a man of the upmost integrity’<\/p>\n Q: How worried are you about Donald Trump\u2019s constant attacks on Federal Reserve chair Jerome Powell, and his sacking of the head of the Bureau of Labor Statistics?<\/p>\n![\"Phillip](\"https:\/\/www.newsbeep.com\/ca\/wp-content\/uploads\/2025\/08\/Philip_Inman.png\")
Phillip Inman<\/p>\n