The Bank of England policymakers are widely expected to cut borrowing costs for businesses and homeowners by reducing official interest rates from 5% to 4.75% when they meet later today.
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Financial markets are overwhelmingly forecasting that the Bank’s nine-strong monetary policy committee (MPC) will reduce rates for a second time when it announces its latest decision at noon.
Markets believe there is a 96% chance of a cut, with the Bank citing the fall in the headline rate of inflation to 1.7% and an easing of underlying price pressures as justification for the move.
After raising interest rates from 0.1% to 5.25% in 14 consecutive jumps from December 2021 to August 2023, the MPC voted to ease policy with a quarter-point reduction in August.
Andrew Bailey, the Bank’s governor, signalled rates had further to fall when he said last month that further progress in the battle against inflation would allow the MPC to be more “aggressive”.
The investment bank Goldman Sachs said before last week’s budget that it expected rates to be reduced by 0.25 points at every one of the Bank’s next nine meetings, taking them down to 2.75% by November 2025.
Some analysts said the boost to growth provided by Rachel Reeves’s package might make the Bank more wary of future rate cuts after Thursday’s decision.
James Smith, UK economist at ING bank, said: “Last week’s budget has made life more complicated for the Bank of England. A rate cut is all but certain, but the combination of extra fiscal stimulus and a volatile US election aftermath means officials won’t want to comment on its next steps.
“A December rate cut has become less likely, although a lot hinges on the two inflation reports we get before Christmas.”
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Paul Dales, Capital Economics said: “The Bank of England will almost certainly cut interest rates for the second time in this cycle, from 5% to 4.75%, at the meeting on Thursday 7 November. But it is unlikely to hint that it intends to quicken the pace by cutting rates again at the following meeting in December.”
The Bank of England’s announcement on interest rates will be followed later on Thursday by the latest decision from the US Federal Reserve on US borrowing costs. Despite the expectation on Wall Street that a second Donald Trump presidency will lead to lower growth and higher inflation in the US, the Fed is also expected to cut rates by 0.25 points.