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Bank of England holds rates again, but will it cut before the end of 2024?

20 June 2024

Experts are mixed on whether there will be any rate cuts this year.

By Jonathan Jones,

Editor, Trustnet

The Bank of England (BoE) has held rates again at 5.25%, making it almost 12 months since its last rate rise. There just two dissenting voices this time around, who proposed lowering rates by 25 basis points, while seven members of the Monetary Policy Committee (MPC) were happy to wait.

This is despite inflation dropping back to the Bank’s 2% target last month, according to data from the Office for National Statistics released this week, and GDP growing more strongly than expected.

A statement released on behalf of the MPC read: “Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit.”

Official Bank rate

Source: Bank of England

Lindsay James, investment strategist at Quilter Investors, said that although inflation hitting 2% was a “significant milestone”, it was not enough to allow the Bank of England to declare job done.

“While it will come as a bitter blow to the Conservative party, this decision is no real surprise given month-on-month figures suggest inflation is unlikely to remain at 2% for long. It is instead expected to rise again later this year and ultimately settle between 2% and 3%,” she added.

As such, those hoping for interest rate cuts may have to temper their expectations. She suggested the first may not arrive until the November meeting.

The main roadblock to rate cuts appears to be the labour market, with policymakers noting it is “difficult to gauge”, but remains “relatively tight by historical standards”.

James said: “With the Labour Force Participation Rate still trending down and at the lowest level since 2015, a worker shortage is one crucial inflationary factor that will need addressing by the incoming government.

“Given the Bank’s focus on sustainably returning inflation to the target in the medium term, it could be some time yet before we see a cut.”

Not all were as pessimistic, however. Julian Howard, chief multi-asset investment strategist at GAM, said: “The path appears increasingly clear for some easing at the August meeting.”

He was particularly interested in the UK's energy bills, which are easing, with price reductions finally being passed on to consumers after months of “lumpier” price movements.

Risks remain, such as the upcoming general election, and he noted the Bank will be “keen to avoid a policy error” by cutting too soon.

Andrew Summers, chief investment officer at Omnis Investments, agreed that rate cuts are still “on the horizon” and also suggested they could start in August, although he noted that the most probable date is November.

Yet others were even more circumspect, with Nicholas Hyett, investment manager at Wealth Club, suggesting markets no longer expect the Bank to cut rates at all in 2024.

“At the beginning of the year four cuts were being priced in. It’s amazing the difference six months can make,” he said.

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