Bank of England Expected to Lower Interest Rate to 4.75% on November 7

image

Bank of England Expected to Lower Interest Rate to 4.75% on November 7

According to a consensus forecast from 72 economists, the Bank of England (BoE) is expected to lower the Bank Rate by a quarter point to 4.75% on November 7. This decision aligns with the decline of UK inflation to 1.7% in September, the lowest level in three years, providing flexibility for the Monetary Policy Committee (MPC) to reduce interest rates following the pause in September. The MPC narrowly voted in favor of initiating a rate cut in August.

The UK economy is showing relative strength, and an increase in investment is anticipated following the upcoming budget announcement from Chancellor Rachel Reeves. Despite positive inflation figures, BoE Governor Andrew Bailey and MPC member Megan Greene downplayed their significance, while another MPC member, Catherine Mann, indicated that inflation needs to cool further.

A recent survey conducted between October 22-28 revealed that all participants expect an interest rate cut in November, but about two-thirds do not foresee any changes in December. In contrast, the remaining economists predict an additional 25 basis point cut.

Moreover, 11 out of 16 Gilt-Edged Market Makers expect the MPC to hold rates steady in December, while five expect a cut. Interest rate futures are forecasting cuts for both November and December.

In comparison, the speed of the BoE’s interest rate cuts is slower than the U.S. Federal Reserve and the European Central Bank, which have respectively lowered rates by 50 and 75 basis points. While both are expected to implement a total of 100 basis points in cuts by year-end, the BoE is forecasted to cut by 50 basis points.

Median forecasts position the Bank Rate at 3.50% by the end of 2025, reflecting a slight decline compared to the September survey. Projections range between 4.25% and 2.75%, indicating a lack of consensus. When asked about the larger risks concerning the end-2025 forecast, approximately 70% of respondents suggested the Bank Rate could be lower than current expectations.

Regarding the UK budget to be presented by Chancellor Reeves on October 30, half of the economists surveyed believe it will have a minimal short-term impact on UK inflation. Reeves is expected to increase spending on services and infrastructure.

Inflation is forecasted to average 2.6% this year, 2.3% in 2025, and 2.0% in 2026. The UK economy’s growth is expected to be 1% this year, 1.3% next year, and 1.5% in 2026; these forecasts have not significantly changed from the previous survey.