BoE Rate Cuts: Navigating the Uncertainty of Future Reductions

As we expected , the Bank of England cut interest rates following a narrow vote among Monetary Policy Committee members (5-4) , with Governor Andrew Bailey shifting his stance to support the reduction. The Bank indicated that the pace of future rate cuts could slow, making the decision on how much further to reduce rates "a closer call." While there has not been a substantial downturn in the labo u r market and inflation expectations have not decreased significantly, inflation is expected to decline more rapidly toward the 2% target in the near term. As the pace of interest rate cuts is expected to slow further, this indicates the likelihood of stability in rates at the upcoming MPC meeting in February . Current hawkish members are likely to favo u r maintaining rates early next year, and Governor Bailey is expected to align with this position, implying that the next rate cut is more likely to happen in late April. While the labo u r market may demonstrate greater resilience, which would likely prevent cuts beyond 3.5%, a more rapid decline in inflation could warrant additional reductions. We anticipate the possibility of three additional rate cuts next year, scheduled across the main forecast meetings (April, July and November) .