The Bank of England (BoE) has cut its policy rate for the first time since 2020, reducing the rate from 5.25% to 5.0%. This decision, while slightly dovish compared to market expectations, has been met with a range of reactions from asset management firms’ economists and market strategists.
Peder Beck-Friis, economist at Pimco, described the decision as cautious but expected further rate cuts in the future. “Looking ahead, we expect the BoE to proceed cautiously. We think another cut in September is unlikely unless incoming inflation and labour market prints surprise to the downside, and expect the next cut in November as a baseline.” He emphasised that the BoE has room to cut more than financial markets anticipate, given the tight fiscal policy and cooling labour market.
Sandra Rhouma, European economist at AllianceBernstein, noted the “finely balanced” nature of the decision. “Those members who voted for a cut acknowledged that upside risks to the outlook are still present but put more weight on the forecast.” She highlighted that despite ongoing price persistence, inflation is expected to reach its target by 2026, driven by a forecast-dependent BoE approach. ” At this stage, I expect 4 cuts in 2025 to 3.75% with risks skewed to more cuts rather than fewer.”
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David Zahn, head of European fixed income at Franklin Templeton, sees this as the beginning of a rate-cutting cycle. “This is the start of an interest rate cutting cycle that should see interest rates move back towards 3% in the UK. This should be very supportive for UK Gilts across the curve, and we would maintain a long-duration position in UK Gilts.” He also mentioned that the inflation forecasts for 2026 and 2027 are below the BoE’s target, reinforcing the need for continued rate cuts.
Ross Barr, senior multi-asset strategist at Cardano, pointed out the lack of consensus among market participants ahead of the decision. “The interest rate cut was in line with our expectations albeit, ahead of the decision, there was no clear consensus evident in market pricing as to how the BoE’s Monetary Policy Committee would act. The MPC’s decision was not unanimous. Four dissenting voters preferred to maintain rates at 5.25%.” Barr emphasised that the BoE continues to balance the progress made in slowing inflation with lingering threats.
Tomasz Wieladek, chief European economist at T. Rowe Price, focused on the bimodal nature of the risks facing the UK inflation outlook. “The MPC highlighted the call was finely balanced – inflation risks were skewed to the upside, and the forecast did not reflect the recent public sector wage settlements.” He also discussed the BoE’s bold statement on quantitative tightening, suggesting that the effects of QT on the economy have been small so far, but this might change in the future.
The differing views highlight the tough choices the BoE faces in navigating the UK’s uncertain economic landscape. As the situation unfolds, everyone will be watching the BoE’s next moves and their impact on inflation, jobs, and overall economic health.
