BoE Preview: a 25bp cut appears like a done deal

We expect the BoE to cut the Base Rate by 25bp on February 6 as December inflation dropped noticeably and economic activity has stagnated in the second half of 2024 . BoE Governor Bailey was cited as saying that he expected the Bank Rate to be reduced by 1% this year. At the December MPC meeting, three Committee members, Deputy Governor Dave Ramsden and external members Alan Taylor and Swati Dhingra, voted in favor of cutting interest rates by 25bps. This brings us to four members in favor of a cut next week. Also, Deputy Governors Sarah Breeden and Clare Lombardelli as well as Chief Economist Hu w Pill will join the dovish camp in our opinion . In contrast, more hawkish MPC members Catherine Mann and Megan Greene could dissent by voting in favor of keeping rates unchanged , but are unlikely to do so in February . They are more likely to now adopt a “cautious” appro a ch to rate cuts during the year , especially as Mann noted previously that 100bp of cuts would be “too aggressive” this year . Some data came out in support of the hawkish camp, with pay growth accelerating in the three months to November. Overall, inflation is set to be still somewhat sticky this year on the back of higher energy prices, a raise in minimum wage and a net positive fiscal impact on growth this year. Yet, w e keep our scenario unchanged, expecting four rate cuts in 2025, at every meeting with an updated forecasts scenario, implying February, May, August and November. While the effect of higher government spending should more than offset the negative impact from tax hikes on GDP growth this year, reduced private consumption and investment from 2026 onwards will necessitate looser monetary policy. So this year’s cuts will be frontloaded to anticipate and to limit the negative impact on private sector.