Today’s decision by the Bank of England to maintain its base rate at a 16-year high of 5.25%, while signaling a possible cut later this summer came as little surprise to portfolio managers and investment analysts.
Members of the central bank’s monetary policy committee voted 7-2 in favour of leaving the bank’s key interest rate at 5.25%.
Although inflation has now fallen to 3.2% from a peak of 11.1% in October 2022, it has remained stubbornly over the bank’s 2% target since July 2021.
Two 0.25 percentage point cuts to the base rate are now expected by analysts by the end of December.
Bank of England governor Andrew Bailey told a press conference this afternoon that more evidence was needed that inflation was under control before interest rates could safely be cut.
But Charles Hepworth, investment director at GAM Investments, disagreed saying there was now “more than enough justification” to reduce rates soon.
“Sadly, it will be too little and possibly too late for the incumbent Conservative party hoping for a feel-good factor boost in the polls that lower rates could bring. We will have lower rates and a different government this year – that much is certain,” he said.
Neil Mehta, portfolio manager at RBC BlueBay Asset Management, said: “The market thought that the Bank of England was going to put a June cut firmly on the table and is pricing in cuts later this year, but Bailey has said today that a June cut is neither a foregone conclusion nor not going to happen.
“The market might be making a mistake by putting too much emphasis on the UK being more like Europe than the US, but the neutral rate in the UK will be higher than in Europe, leading to a shallower cutting cycle.”
Meanwhile Isabel Albarran, investment officer at Close Brothers Asset Management, said: “Futures markets currently imply a first cut in August, while, at the press conference, Bailey said June hadn’t been ruled in or out. Given the need for greater certainty for several members, we think August is more likely.”
Bank of England updates data and analytics strategy
