BoE: rates on a gradual downward path despite today’s status-quo

As expected, the BoE maintained status quo at today’s monetary policy meeting, stressing that risks for the medium-term path for the CPI inflation were two-sided. Three MPC rate setters, Deputy Dave Ramsden, Swati Dhingra and Alan Taylor, voted in favor of cutting interest rates by 25bps to 4% (more than expected), citing “material further loosening in labour market”. The MPC continues to expect significant slowdown in pay growth this year, yet the Committee will need to monitor carefully the pass-through to consumer price inflation. The i nterest rates will remain “ on a gradual downward path" but not a “pre-set” path. As such, the MPC kept its commitment to a “gradual and careful approach” to cutting interest rates. While the conflict in the Middle East had not been key to today’s decision, the central bank will pay attention and stay “vigilant” about these developments going forward, assessing the potential impact on the UK economy, as energy prices had risen. Regarding potential impacts of US trade tariffs on the global economy and given its limited increase of just 10% , the MPC has become less pessimistic , although it noted that trade uncertainty will continue impacting the UK economy. The BoE continues to expect a peak in inflation rate at 3.7% in September and expects inflation to average at somewhat below 3.5% for the remainder of the year before falling back towards the target next year. The UK economy is projected to expand by around 0.25% in Q2, stronger than 0.1% predicted in May, though the MPC stressed that the underlying growth pace was weak. More dovish than expected voting split reconfirms our call of quarterly 25bp rate cuts this year (August, November) and possibly more frequent cuts next year, with the Bank Rate reaching its terminal rate of 2.5% by the end of 2026 .