NOV 6 – Policymakers at the Bank of England are widely expected to hold interest rates at 4% following their final meeting before the chancellor’s Budget.
Some Bank watchers have suggested that the latest inflation data could strengthen the case for a cut, but most commentators think such a move is more likely in December.
In September, the Bank’s governor Andrew Bailey said he still expected further rate cuts, but the pace would be “more uncertain”.
The Bank’s base rate has an impact on the cost of borrowing for individuals and businesses, and also on returns on savings.
Uncertainty over pace of cuts
The Bank’s Monetary Policy Committee (MPC) will make its latest announcement at 12:00 GMT with most analysts predicting a hold.
The Bank of England has reduced its benchmark interest rate by 0.25 percentage points every three months since August last year. However, that cycle is widely expected to be broken this time.
Members of the MPC will be closely considering the latest economic data on rising prices, as well as jobs and wages as they cast their vote on interest rates.
The rate of inflation in September was 3.8%, well above the Bank’s 2% target, but lower than expected. Within that data, food and drink prices rose at their slowest rate in more than a year.
That has eased some of the squeeze on family finances, and also led to some analysts, including at banking giants Barclays and Goldman Sachs, to predict a cut in interest rates this month to 3.75%.
They expect a split in the vote among the nine-member committee. For the first time, the views of each individual on the MPC will be published alongside the wider decision.
Danni Hewson, head of financial analysis at AJ Bell, said the market was giving a one in three chance of a rate cut to 3.75%.
“The odds are still firmly in favour of a hold,” she said.
All eyes on Budget
Members of the MPC will be fully aware of the potential implications of the Budget which will be delivered by Chancellor Rachel Reeves on 26 November.
The case for a cut in interest rates in December could be boosted if the Budget includes substantial tax rises that do not add to inflation.
The chancellor, in a speech on Tuesday, said measures in the Budget “will be focused on getting inflation falling and creating the conditions for interest rate cuts”.
However, detail remains thin until the Budget is delivered and more economic data will be published before the Bank’s next meeting in December that could sway MPC members’ thinking.
“It’s possible Rachel Reeves’ surprise press conference on Tuesday was partly a cry for help to the Bank of England,” AJ Bell’s Ms Hewson said.
“By promising to push down on inflation, she might have been signalling that the Bank didn’t have to wait until after the Budget to cut rates. Whether they do or not is a finely balanced call.”
The Bank’s interest rates heavily influence borrowing costs for homeowners – either directly for those on tracker rates, or more indirectly for fixed rates.
In recent days and weeks, many lenders have been cutting the interest rates on their new, fixed deals as they compete for custom, and in anticipation of future central bank rate cuts.
Savers, however, would likely see a fall in the returns they receive if the Bank cuts the benchmark rate on Thursday or in December.
Rachel Springall, from financial information service Moneyfacts, said many savers were feeling “demoralised” as a result of falling returns and still relatively high inflation, which reduces the spending power of their savings.
By BBC
