BoE Keeps Rates Steady Amid Inflation Concerns
Comparison with Other Central Banks
The BoE’s stance follows the European Central Bank’s recent rate cut, while the U.S. Federal Reserve is not expected to reduce rates until later this year. Market expectations for a BoE rate cut are now set for September or November, despite a Reuters poll indicating a potential cut on August 1.
Political Implications
The timing of any rate cut is critical for Prime Minister Rishi Sunak, whose Conservative Party trails the opposition Labour Party by 20 points in pre-election polls. Sunak has highlighted the decline in inflation since taking office, whereas Labour attributes high mortgage rates to economic mismanagement by former Prime Minister Liz Truss.
Inflation and Wage Growth
The BoE forecasts inflation to exceed its target as the impact of previous energy price drops wanes, with a projected inflation rate of around 2.5% in late 2024. The policy minutes revealed that the decision to hold rates was “finely balanced” for some MPC members, who noted moderating but still high wage growth and services inflation since May.
Market Forecast: Bearish Outlook
Given the cautious stance of the BoE, combined with persistent inflation pressures and high wage growth, the short-term market outlook remains bearish. Traders should anticipate continued volatility as the BoE assesses the economic landscape and timing for any future rate cuts.
