As expected, the Bank of England (BoE) started the rate cut process yesterday. However, the vote was extremely close, with five policymakers voting for the move and four against, with BoE Governor Andrew Bailey appearing to be the swing vote. At the same time, it was stressed that there was no predetermined path for further rate cuts, but that it would be decided meeting by meeting whether the degree of monetary tightening could be eased further, Commerzbank’s FX strategist Volkmar Baur notes.

BoE is worried about further growth

“The overall impression was therefore that this was more of a hawkish rate cut. It was also emphasised several times that inflation remains stubborn, especially with regard to services inflation, and that we should see higher year-on-year rates again towards the end of the year due to base effects.”

“Unless there is a surprisingly sharp fall in inflation in the coming months, the BoE is likely to be cautious about cutting rates for the time being. The two further rate cuts this year, which the market priced in yesterday, do not really fit into this picture. Although expectations have now corrected somewhat, it is more likely that the BoE will make one more cut this year and that further rate cuts will be gradual.”