The Bank of England stands ready to implement its second interest rate reduction of the year, with economists widely expecting a cut to 4.75 per cent at Thursday’s meeting. The nine-member Monetary Policy Committee (MPC) is predicted to vote 7-2 in favour of lowering the rate by 25 basis points from its current level of 5 per cent.
Japanese investment bank Nomura’s analysis suggests the decision will be relatively straightforward, with strong consensus among committee members. The timing of Rachel Reeves’s recent budget announcements means their full impact may not be reflected in the Bank’s latest economic forecasts, according to investment firm Investec.
Donald Trump’s presidential victory could potentially complicate the UK’s economic outlook, with concerns that his proposed trade policies might sustain higher inflation and dampen growth. The National Institute of Economic and Social Research indicates this scenario could lead to a more measured approach to monetary policy easing.
Recent economic indicators have strengthened the case for a rate cut. UK inflation dropped to 1.7 per cent in September, while services inflation – a key metric for the MPC – declined to 4.9 per cent. Regular wage growth has moderated to 4.9 per cent, reaching its lowest point in two years.
The bond markets have displayed notable volatility following the Chancellor’s announcement of £28 billion in additional borrowing for public sector investment. The yield on ten-year UK government bonds experienced a significant 25 basis point increase in the immediate aftermath of the budget announcement.
Goldman Sachs projects UK interest rates will continue their downward trajectory, potentially reaching 3 per cent by September 2025. This forecast aligns with the broader market expectation of sustained monetary policy easing throughout the coming year.
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