Interest rates will hold at 5% as Bank of England unconvinced inflation has been fully tamed

Ahead of Thursday’s Interest Rates announcement, head of income strategy at Investment Platform Saxo, Althea Spinozzi said the Bank of England is ‘likely to keep base rates at 5%’ as they remain ‘unconvinced’ inflation has eased.

Althea said services inflation ‘remains a concern’ with rates expected to rebound in August to 5.6%.

Speaking ahead of the announcement, Althea said the Consumer Price Index is expected to ‘show headline inflation steady at 2.2%’  while core inflation could ‘rebound to 3.6%’ due to a rise in services prices.

Head of income strategy at Investment Platform Saxo, Althea Spinozzi, said, “The Bank of England (BoE) is expected to hold interest rates steady at its September meeting, after cutting rates in August for the first time since 2020.

“Despite that rate cut, the BoE has continued to take a cautious approach, as emphasized by Governor Andrew Bailey at the Jackson Hole symposium. The upcoming meeting is likely to maintain this careful stance on easing policy.

“The BoE is likely to keep the base rate at 5%, signalling that it remains unconvinced inflation has been fully tamed. While inflation has cooled in recent months, services inflation remains a concern, expected to rebound to 5.6% in August, keeping inflationary pressures alive.

“We anticipate Swati Dhingra likely advocating for a 25-basis-point cut, while deputy Governor Dave Ramsden might vote with the majority this time. This week’s BoE meeting will mark Alan Taylor’s first as he steps in to replace Jonathan Haskel. While his policy stance remains unclear, we anticipate

“The latest Consumer Price Index (CPI) data, released a day before the meeting, is expected to show headline inflation steady at 2.2%, but core inflation could rebound to 3.6% due to the rise in services prices. Despite the slight cooling seen earlier in the year, persistent inflationary pressures remain a key concern for the BoE.”