![\"Payrolled](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2025\/08\/9b4345fed93a0e3ac1646afa285cfc31.png\" "\\"Payrolled")
<\/p>\nThe is creaking, providing plenty of justification for a 25 basis point rate cut this month. But it\u2019s a nuanced picture, which, set against sticky inflation data, suggests little reason for the Bank to open the door to a faster pace of easing at its 7 August meeting.<\/p>\n
Don\u2019t Expect the BoE to Signal a Faster Pace of Easing<\/p>\n
There\u2019s almost no doubt that the will cut rates down to 4% (from 4.25% currently) at its 7 August meeting. But that seemingly cautious action, which will continue a well-established pattern of quarterly rate cuts, masks stark divisions among policymakers on what to do next. A three-way divide looks highly likely, with some officials voting for no change, a 25bp move and a more aggressive 50bp cut.<\/p>\n
The question looming over this meeting is whether a more worrisome deterioration in the jobs market is imminent. Slack is undoubtedly building. Payrolled employee numbers have fallen in seven out of the past eight months. The has risen by a few tenths of a percentage point this year (and crucially, unlike in recent years, the data looks more reliable). Vacancy data from Indeed suggests the UK jobs market has cooled further than in other major economies.<\/p>\n
Private Sector Employment Is Falling<\/p>\n
But this is a slow-moving story. And a lot of the weakness in the employment numbers is concentrated in hospitality, a sector that is disproportionately affected by recent hikes in the National Living Wage and payroll taxes (National Insurance). So far, these declines don\u2019t appear to be broadening out across the private sector and redundancy notices have shown no discernible increase.<\/p>\n
Source: Macrobond, ING <\/p>\n
In other words, there\u2019s no smoking gun that might prompt a fundamental rethink in the Bank\u2019s outlook just yet. Meanwhile, the inflation data is still proving sticky. Services inflation, a key metric for the BoE, is stuck at 4.7%. That\u2019s fractionally above the Bank\u2019s May forecasts, which were already fairly high.<\/p>\n
How much this matters for policy is certainly debatable. A lot of what\u2019s keeping services inflation elevated is linked either to tax rises or rents, which should begin to contribute much less over the coming months. But the fact that so many prices are set annually in April means that we\u2019ll have to wait until next spring to see a more material improvement. Until then, it\u2019s likely to stay north of 4% which is an awkward place to be for the Bank.<\/p>\n
UK Services Inflation Has Stayed Higher Than Elsewhere<\/p>\n
What\u2019s equally uncomfortable is the fact that headline inflation has risen to 3.6% in recent months. Food inflation has picked up above what the BoE had predicted back in May, which is potentially linked to April\u2019s tax\/minimum wage changes. We\u2019d expect the Bank to nudge up its inflation forecasts a touch next week.![\"Services](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2025\/08\/230b5b1e91b5fb388fb1c52b2598a275.png\" "\\"Services")
Source: Macrobond, ING<\/p>\n
That\u2019s no big drama in and of itself, but remember the BoE \u2013 and particularly Chief Economist Huw Pill \u2013 is particularly sensitive to headline CPI when it is between 3.5-4%. Officials are concerned that when inflation reaches these levels, it is more likely to become embedded. We\u2019re less convinced, given that the jobs market is under pressure, but it\u2019s another reason to think the committee will be reluctant to entertain the possibility of faster rate cuts.<\/p>\n
What We Expect From August\u2019s Meeting<\/p>\n
We\u2019d expect the Bank to cut rates this month but offer very little in terms of forward guidance, besides reiterating its bias for further \u201cgradual\u201d and \u201ccareful\u201d cuts.<\/p>\n
Instead, much of the investor focus will be on the vote split. At least one official \u2013 Catherine Mann \u2013 is likely to vote for no change. She may be joined by Huw Pill and Megan Greene, though a lack of recent commentary from either makes that hard to assess. At the opposite end of the spectrum, arch-dove Swati Dhingra is likely to vote for a larger 50bp cut. Fellow dove Alan Taylor might be tempted to join her, though he recently said he\u2019d like to see three more cuts this year, which tends to suggest he\u2019ll vote for 25bp moves at each meeting. Dave Ramsden is also one to watch.<\/p>\n
If we had to guess, we suspect we\u2019ll get seven members voting for the 25bp rate cut, with one dissenter in either alternative camp (no change\/50bp cut). Whatever happens, don\u2019t read too much into it. History tells us that the vote split has very little predictive power for future decisions, though obviously that doesn\u2019t stop markets reacting to it on the day.<\/p>\n
We\u2019ll also be watching for any hints on the Bank\u2019s annual decision on quantitative tightening, due in September. Focus is on whether the Bank will reduce its current annual gilt reduction target from \u00a3100bn, given recent strains in the gilt market \u2013 or alternatively whether it skews sales away from longer-dated bonds. This month\u2019s Monetary Policy Report will likely comment on whether QT is having a greater impact on bond yields. And if it is, that might be a precursor for a slower pace of active gilt sales.<\/p>\n
FX: EUR\/GBP Closer to 0.86 Looks Fair<\/p>\n
The euro\u2019s sell-off on the EU:US trade deal saw drop as much as . It was quite telling to see unchanged in a broadly offered environment for European currencies. That price action reflected the fact that sterling had not been caught up in the speculative buying of European currencies ever since fiscal expansion was forced onto Europe back in February.<\/p>\n
But trading back in a 0.86-87 range looks more consistent for EUR\/GBP with short-term rate differentials. As above, it\u2019s hard to see a clean take on a more\/less dovish BoE at the MPC meeting. What we would say, however, is that there is an asymmetry in where sterling rates trade from here.<\/p>\n
If the BoE is working off a cycle of 25bp rate cuts per quarter, then market rates are lagging at pricing in only 55bp of cuts by next February\u2019s meeting. The risks are skewed to more rather than less easing being priced in \u2013 threatening upside risks to EUR\/GBP. At the same time, the noise around the November UK budget adds a negative event risk for sterling.<\/p>\n
In short, it\u2019s not clear that the will be a big market mover for EUR\/GBP, but the threat of weaker employment data and tighter fiscal policy come November should see good demand for EUR\/GBP near 0.86. And by year-end, we suspect EUR\/GBP will be more comfortable at 0.88.<\/p>\n
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