Bank of England Expected to Cut Interest Rates This Week

The upcoming week will see the Bank of England policy setting meeting on Thursday (6th February), with markets watching keenly for both immediate moves, and and indications of future policy.

With current interest rates at 4.75%, there is an anticipation that we will see the BoE lower its benchmark interest rate to 4.5. Alongside the rate decision, the BoE is also expected to update its economic growth and inflation forecasts. This update is likely to include a downgrade in GDP growth projections and revised expectations for unemployment, reflecting a potential divergence between near-term and medium-term inflation expectations.

Analysts are suggesting that this cut may not be the only adjustment this year, with markets factoring in three quarter-point rate cuts over the course of the year.

Bank of America Securities predicts an 8-1 vote within the Monetary Policy Committee (MPC) in favour of the rate cut, attributing this outlook to declining services inflation, sluggish economic growth, and a loosening jobs market. In contrast, a previous vote saw six committee members opting to keep rates steady while three supported a quarter-point cut.

Barclays aligns with the expectation of a rate cut but forecasts a 25 basis point reduction with a 7-2 vote split. It also projects further sequential cuts commencing in May, with the bank rate possibly reaching a terminal level of 3.5% by September 2025.

The number of cuts over the coming year, and the respective moves of other global central banks will be expected to have an impact on a variety of financial markets. Whether you are watching stocks, through to currencies, the moves could be significant, particularly so if schedules are out of sync or there are any surprises.