Bank of England makes first rate cut – Commerzbank

The Bank of England today cut interest rates by 25 basis points, as expected by us and most observers. However, we expect further rate cuts only slowly and to a limited extent. Today’s decision was very tight with a vote of 5:4 and the BoE also acknowledges that inflation remains quite persistent and that interest rates will therefore have to remain at a restrictive level for a while longer, say Commerzbank economists Bernd Weidensteiner and Dr. Christoph Balz.

BoE to continue cutting rates

“As expected, the Bank of England today cut interest rates by 25 basis points to 5.00%. However, the decision was a very close one with a 5-4 vote; 4 members of the Monetary Policy Committee voted to keep rates unchanged. The Bank said it is now ‘appropriate to slightly reduce the degree of policy tightening’.”

“The real economy has performed better than the BoE had expected in May. The Bank discussed risks to the growth outlook and sees these as pointing to the upside for overall domestic demand, even if growth in the first half of the year was probably somewhat overstated.”

“Monetary policy ‘will need to remain tight for long enough until risks to inflation returning sustainably to the 2% medium-term objective have dissipated further’. We continue to assume the BoE will cut interest rates by 25 basis points every three months, next in November and then in February and May 2025.”