Interest rates cut ‘unlikely’ as Bank of England members ‘remain cautious’

The Bank of England (BoE) will likely keep interest rates unchanged at 5.25% on Thursday, a financial expert has cautioned.

Policy makers will meet tomorrow to discuss rates following a split decision in June when the vote was left 7-2 in favor of holding rates.

Althea Spinozzi, Head of Fixed Income Strategy at investment platform Saxo said many of the votes are ‘unlikely to switch’ with four members ‘remaining cautious’ due to potential growth.

Althea said uncertainty around future tax hikes mean the bank ‘risks exacerbating inflationary pressures’ if it eases policy prematurely.

Althea Spinozzi, Head of Fixed Income Strategy at Investment Platform Saxo, said, “The Bank of England (BoE) is likely to keep the Bank Rate unchanged at 5.25% due to the need for potential upward revisions in macroeconomic projections, with service inflation and wage growth remaining well above target.

“At the BOE’s June meeting, the vote split was 7-2 in favor of holding rates. Since then, policymakers have remained largely silent on monetary policy due to the recent UK general elections, providing little insight into this month’s vote result.

“The two votes for a rate cut and hold votes are unlikely to change. Additionally, four Monetary Policy Committee (MPC) members are unlikely to switch from hold to cut due to potential upward revisions in growth projections for the year.

“Increased borrowing requirements to cover the fiscal gap is a key focus. With future tax hikes uncertain in timing and scale, the BoE risks exacerbating inflationary pressures and undermining financial stability if it eases monetary policy prematurely.

“If the BoE holds rates at this week’s meeting, it is likely that the yield curve will slow its steepening. Two-year yields may soar to test resistance at 4% and remain range-bound until the central bank actually begins cutting rates. Long-term yields remain at risk of rising if the BoE sounds too dovish.”