What’s the Bank Rate Going to Do Next?
After chopping the Bank Rate twice already this cycle, the Monetary Policy Committee (MPC) has decided to keep things steady for now. They’ll probably hold the rate at 5.00% for the September meeting and leave it there until they’re ready to tackle the next cut after the November review.
Why the Pause?
The MPC’s main focus is still on the effects of that first 25‑bp cut in August. They’re giving the market a chance to see how that move is influencing inflation, growth, and the overall economy before making any more surprise moves.
How the Markets Are Reacting
- The GBP Overnight Index Swap (OIS) curve suggests investors think there’s only an 18% chance of another cut in September.
- That small probability isn’t set in stone. It could shift based on the latest CPI data, which we’ll see in the very next day (just before the 19th September BoE decision).
Where Should Investors Look?
Even though the MPC is taking a breather, any clues about the future path and the annual review of quantitative tightening might still be worth watching. These hints can give traders valuable signals about where the rate might head next.
Bottom Line
In short: expect the Bank Rate to stay flat at 5.00% for now. But keep your radar on inflation reports and policy commentary—those could shift the odds of another tweak in the coming months.
Bank Rate Show‑down: The Vote is 8‑1, Not a Nail‑Biting 5‑4
Remember when the MPC pulled a wild 5‑4 swing? That whole “knife‑edge” vibe is cooling off. Now the September meeting looks more like a front‑loaded victory lap – and the spoils team is clear: keep the Bank Rate where it is. 8 of the 9 members are in the “hold‑steady” camp, and only 1 wants a change.
Who’s Who in the 8‑1 Rally
- Chief Economist Pill + external friends Greene and Mann — hawks, standing tall, favoring the unchanged rate.
- Alan Taylor (the fresh face who replaced ex‑MPC guy Jonathan Haskel), plus Chairman Bailey, & the duet Breeden & Lombardelli, plus Ramsden — all nodding at steady rates.
- Dhingra (our resident “Threadneedle‑Street dove”) has a small chance of pushing for a 25bp pop.
- Ramsden might play the dove card too – he already tipped for a cut in June, ahead of most of his mates.
In short, it’s a safe bet that the rate will stay put – just a few parliamentary footnotes away from a break‑through.
The Usual Suspects: Policy Guidance to Stay the Same
After August’s loud rally, the MPC will likely lean on the same script: keep policies restrictive for long enough until the echoing risks of inflation fade. The classic “step‑by‑step” slide‑down method will stay on the table.
Will the Forecast Keep Asking the Same Questions?
- Does the bank need another 50bp cut by year‑end? Maybe – but the track on that is pretty bold.
- Is a 150bp trim in the next 12 months realistic? Many reckon it’s a stretch.
So, think of the MPC’s setup like a party circle where the “steady” set of voters keeps the rhythm, while a feather‑light dove might chase one small extra beat. But the main beat? Freshened at the same slow tempo.
UK Economy Survives The Inflation Party
Headline Inflation Slightly Jumped
Since the August meeting, the UK economy has been sticking to the MPC’s playbook. In July, headline inflation nudged up to 2.2% year‑over‑year.
But Chill, It’s Mostly Energy Gizmos
The spike is mostly a classic “base effect” from energy prices doing a less dramatic fall this summer compared to last year. In other words, the numbers are playing tricks.
Underlying Inflation Worries No More
- Core CPI fell to 3.3% YoY – a near 3‑year low.
- Services CPI dropped to 5.2% YoY – a 2‑year low.
Bottom line: the big‑picture disinflation trend keeps holding its ground.
The Inflation Outlook Takes a Tighter Grip on the Labor Landscape
After years of wobbling, the threat that inflation might stick around is shrinking thanks to a more stable labor market. In the three months to July, average hourly pay climbed 5.1% year‑on‑year—the slowest rise in two years. Total wages, meanwhile, only jumped 4.0% over the same period— the smallest increase since the end of 2020.
Even though those numbers are still a bit warm for an “all‑clear” flag, the trend is looking encouraging.
Job Market Squeaking Silence
- Unemployment dipped to 4.1% in July, down from the 4.4% peak seen in the second quarter.
- The figure beats the Bank of England’s Q3 2024 projection of 4.4%.
But Be Mindful of Data Gaps
The Office for National Statistics’ Labour Force Survey still runs into transparency issues. Low response rates cause high volatility, so policymakers are cautiously skeptical about relying heavily on these labor‑market slack metrics.
Mixed Signals: The Economy’s Roller‑Coaster Ride
Manufacturing and Services Prospects are looking pretty rosy at first glance. The manufacturing PMI surged to a 26‑month high in August, and the services index has been in the growth zone for ten straight months. It’s the kind of headline that makes you think the economy’s riding a high‑speed train.
Reality Check: GDP Hits the Freeze
But the real GDP numbers are waving a different flag. Both June and July recorded zero percent change month‑on‑month, and the three‑month rolling growth tumbled to 0.5%. That dip is almost entirely a carry‑over from May’s modest gain. In short, the engine is idling.
What’s Driving the Slowdown?
The economic drag isn’t a surprise—top‑line growth fast enough to sustain its first half of 2024 simply never seemed feasible. However, the plot thickens:
- Geopolitical tensions stay high, acting like a constant hitch in the ride.
- In October’s Budget, we expect fiscal tightening, which will push the brakes a bit harder.
- These factors inflate downside risks, turning our bright outlook into a cautious one.
Bottom Line
On the surface, the economy feels superhero‑strong with manufacturing and services doing well. Yet, the deeper data tells a more sobering story: GDP growth is wobbly, and looming fiscal changes may slow things further. Stay alert, keep an eye on the numbers, and remember: even the best economies sometimes hit pause.
Bank of England’s Crunch‑Time: Will They Keep Tightening or Ease Up?
As September rolls in, most market followers are focusing on two big things: the economy’s mood‑board and the Bank of England’s (BoE) fresh take on quantitative tightening (QT). The latter is the headline that’s keeping traders on their toes.
What’s the BoE Doing?
- Passive QT: Every month, the BoE lets its maturing securities naturally fade away from its balance sheet. Think of it as a slow‑mo dance, shaving off a few bucks at a time.
- Active QT: In addition, the BoE is selling gilts at a blitz speed—£50 billion a year, the half‑point of a full £100 billion cut. This kind of “shove off” action surprises markets, usually in a good way.
However, the twist is that rising interest rates have turned the sale of gilts into a profit‑pain for the government. The higher rates mean the government earns less on its own debt, giving the Bank a hard time.
Will They Slow Down?
Since the Monetary Policy Committee (MPC) is an independent body, it shouldn’t let politics cut into its QT decisions. A soft‑landing for the new government could alienate traders who expect the BoE to keep tightening.
Still, here are the other juicy bits:
- Repo Operations: Repo usage has spiked over summer, raising repo rates. This points to a cash shortage in the financial system—think of it as a shortage of high‑energy shopkeepers in a super‑busy market. A slower QT could pump more liquidity into the mix.
- Future Outlook: Governor Bailey and his crew aren’t all worrisome. They anticipate repo demand will soar as the balance sheet shrinks, yet remain ready to take on the challenge.
In short, while the BoE’s tightening cycle is still in full swing, its future path may find a sweet spot between the urgency of the market and the resilience required from the analyst community.
Bank Rate vs. Balance Sheet: A Tug‑of‑War
Short‑term panicking? Long‑term sanity? “Balance Sheets vs. Bank Rates” is the headline that’s got everyone talking.
What the Chair is Saying
The Monetary Policy Committee (MPC) is turning the page on the “lock‑down” chapter and is showing signs that it’s ready to ease the restrictions… but only slow and steady.
- Policy cuts will happen, but at a gradual pace.
- Washing out the massive balance sheet is a stricter move – it’s actually tightening the financial climate.
- That tightening could damp the impact of the Bank Rate cuts on markets.
The Unplanned Twist of 2025
By 2025, the government’s earmarked bond roll‑downs (gilt redemptions) might be a bit too spry. If the annual Quantitative Tightening (QT) stays at £100bn, those active sales will actually drop to around £15bn. That’s a drop in the bucket, but it could be a whopping, unnecessary “slower‑down” on the balance sheet.
So What’s the Remedy?
In the upcoming September meeting, the MPC might want to hitch a ride and speed up QT. That way, the “active sales” pace stays on track and the bond market doesn’t get a surprise slowdown.
- Going “tacitly consistent” would keep QT unchanged.
- But a quickened path may bring headwinds for the gilts market.
Bottom line? While a “path of least resistance” may simply mean staying the course, you’re better off keeping your ears to the ground – because one faster move could ripple through the bonds in ways no one had planned.
GBP Unchanged? The “Old Lady” Keeps Her Cool
The Bank of England’s September MPC meeting didn’t deliver a seismic shock – at least not for the pound. In plain speak, the pound left the room as it started, neither racing ahead nor crashing sideways.
What’s the takeaway? The “Old Lady” – that’s what we like to call the Bank – keeps taking a pie‑sized step toward higher rates, moving at a slower pace than most of her G10 mates. Slow and steady, folks!
Why the Caution Matters
- Gradual Normalisation: The BOE won’t rush into aggressive tightening; it’s like a seasoned tea‑maker brewing a slow, deliberate pot.
- Sharply Tighter Peers: Colleagues from the U.S., Eurozone, and other G10 members are tightening faster, potentially leaving the pound a touch behind.
- Potential Medium‑Term Boost: As the economy keeps showing strength, the gradual approach could give the pound a steady lift over the next few months.
Key Ingredients for the Mid‑Term Tug‑of‑War
Even if the pound remains on the sidelines today, a few ingredients could keep it afloat:
- The bank’s measured rate hikes keep inflation pressure at bay.
- Strong domestic data continues to deflect market anxiety.
- Global risk‑off sentiments stay low, preventing sudden currency shocks.
Bottom Line
At the end of the day, the September MPC decision is unlikely to change the pound’s trajectory dramatically at this moment. But it reaffirms the Bank of England’s patient stance – “Old Lady” style – which could provide a reliable, medium‑term foundation as long as the economy keeps proving itself solid.
