That gives us an idea of what we should expect next week. While the chances of a surprise rate hike have long since faded, there’s a good chance that the committee’s three hawks will once again vote in favor of another 25bp rate hike, leaving us with a repeat of 6- 3 votes in favor of no change. We only received a statement and minutes on Thursday, and there is no press conference or forecast, so the opportunity to change the message is quite limited. But we expect the same aggressive guidance as last time, including the line of maintaining restrictive rates for an extended period.
Could the Bank be tempted to go even further and formally say that the markets have been wrong? The Bank of England has been less willing than other central banks to comment directly on market prices in its post-meeting statements or to make predictions about how it will vote at future meetings. It last did this in November 2022, when poor performance in UK markets meant the pricing of rate hikes had reached an extreme level.
We doubt they will do something similar this month. Policymakers may be uneasy about the recent reassessment of UK rate expectations, but central banks around the world have learned the hard way in recent years that trying to predict and commit to future policy, with relative certainty, It’s a fool’s game.
The Bank will also be glad that the data at least starts going in the right direction. Services inflation was below the Bank’s most recent forecast and, while one month does not mark a trend, we believe there are good reasons to expect further falls in 2024. It is true that we believe that the services CPI will remain rigid in the area of 6% throughout the year. in the early stages of next year, but by summer we hope to have fallen to 4% or less. Likewise, the labor market is clearly cooling and that suggests the days of 8% private sector wage growth are behind us. We expect this to return to the 4-4.5% area next summer as well.
Markets may be right to assume that the Bank of England will take a little longer to kick off rate cuts than its European neighbors. But when rate cuts begin, we believe the Bank of England’s easing cycle will end up becoming more aggressive. We expect 100 basis points of rate cuts starting in August next year and another 100 basis points in 2025.