The decision is likely to be well balanced, with the bank expected to vote 6-3 or 5-4 in favor of a rate cut. But what are traders currently expecting from the decision? The OIS market is showing a ~61% probability of pricing in a rate cut of around 55 basis points this year.
After the August decision, the Bank of England still has three meetings left in the rest of 2024. These are the September, November and December meetings. So, there is still time for two rate cuts, as traders currently expect.
Given that, it may not matter much if the BoE decides to cut rates this week or in September. Especially if it sends a more dovish signal at Thursday’s meeting. Even more so if the votes seem close and the language leans toward a rate cut at the next meeting.
Of course, the knee-jerk reaction is to see the pound jump if the decision is to keep interest rates unchanged this week. But there is a strong chance that we will see this reaction fade quickly too, unless the BoE sends a message that it is still very uncomfortable with the current price pressures.
But what we should note is that the previous decision in June saw the central bank comment that the decision was indeed “well balanced,” even though the vote to keep rates unchanged was 7-2. Moreover, there was no mitigating language as the statement consisted of:
- It is essential to ensure that inflation will remain low before cutting interest rates.
- Monetary policy will need to remain restrictive long enough to bring inflation back to target.
- The Bank of England remains prepared to adjust monetary policy as economic data dictate to return inflation to its 2% target on a sustainable basis.
- We will continue to closely monitor indicators of ongoing inflationary pressures and resilience in the economy as a whole.
So any changes to this will help fend off the two rate cuts expected in the coming months even if no rate cut occurs in August. In other words, the details are what you need to pay attention to in this week’s decision.
