Former British PM says the interest rate cut shows the Labour Party ‘inherited a strong economy’
Former British Prime Minister Rishi Sunak, whose Conservative Party lost the July national elections, welcomed the Bank of England’s decision to trim interest rates as “good news for homeowners” and a sign that the Labour Party “inherited a strong economy.”
“My concern now is that Labour’s inflation-busting public sector pay rises have put further cuts at risk,” Sunak said in a social media post.
“In government, we took difficult decisions that cut inflation from 11.1 per cent to the Bank’s target 2.0 per cent paving the way for lower rates. Our concern is that further substantive cuts may now take longer because of inflation-busting public sector pay rises rushed through by the Chancellor ahead of the summer,” former Finance Minister Jeremy Hunt said in a separate post on the X social media platform.
Sunak called a snap election back in May, on the same day when fresh official data showed that U.K. inflation had declined to 2.3% in April, close to the Bank of England’s 2% price growth target. Both the Conservative and Labour parties made the economy a key part of their campaigns.
— Ruxandra Iordache
Bank of England likely to wait with next interest rate cut until November, economist says
The Bank of England’s next rate cut is likely not to come until November, Kallum Pickering, chief economist at Peel Hunt told CNBC.
“My hunch is the Bank of England will want to do what the ECB is doing and set markets up for a cut, then a pause, and then a cut and then a pause and so it won’t be until November I think that we’ll get another cut,” he said.
Further hints on the outlook could come from the post-meeting press conference, he noted on Thursday before the press conference took place.
Pickering also said that the five to four split of votes in favor for the cut indicated that BOE Governor Andrew Bailey had “made the deciding call.” There had been good reasons to hold rates steady, or cut them, he added.
— Sophie Kiderlin
The British pound ‘held its own’ following the Bank of England’s interest rate cut
In this photo illustration, British GDP £1 coins and bank notes are pictured on September 25, 2022 in Bath, England.
Matt Cardy | Getty Images News | Getty Images
The Bank of England met expectations by lowering interest rates in the “razor-thin 5-4 split vote” of Thursday, according to the head of market strategy at financial services firm Ebury, allowing the British currency to hold ground.
“Sterling held its own following the announcement, despite the fact that markets were pricing in no more than around a 60% chance of a cut prior to the decision,” Matthew Ryan said in an emailed comment.
“We think that this can be explained by both the cautious tone of the statement, which warned that rates would not be cut ‘too quickly or by too much’, and the sharp upward revision to the 2024 growth estimate,” he added.
— Ruxandra Iordache
Bank of England governor refuses to indicate path for further interest rate moves
Asked whether there are more interest rate reductions to come from the Bank of England, Governor Andrew Bailey said he would refuse to supply a signal at this time.
“I’m not giving you any view on the path of rates to come, I’m saying we will go from meeting to meeting as we always do, and it’s this judgement about resilience,” he said during a press briefing, with reference to the Bank’s concerns over the possible persistence of inflation.
The central bank’s ongoing mission remains to “squeeze the persistent element of the inflation out of the system” while keeping price growth near the central bank’s 2% target.
The BOE Monetary Policy Committee “continues to remain highly alert to the risks of inflation persistence,” Bailey noted.
— Ruxandra Iordache
Services inflation remains an area of concern, Bank of England governor notes
Bank of England Governor Andrew Bailey warned that stubborn services inflation remains an area of concern for the British central bank, suggesting that the print could rise further in August before dipping in the second half of the year.
“We need to watch services inflation carefully,” Bailey told a press conference on Thursday.
He noted, however, that volatile elements like airfares and hotel prices, should be looked past to get a more accurate view of underlying price movements.
“This do not mean we should adjust our course with every data surprise that comes in,” he added.
— Karen Gilchrist
British gilt yields slip after Bank of England rate decision
The yield on British gilts slipped after the Bank of England announced that it would cut interest rates by 25 basis points on Thursday.
The yield on the 10-year gilt was last down 4 basis points to 3.932% at 12:36 p.m. London time, while the 2-year gilt yield dropped by five basis points to 3.762%.
UK 10-year gilt yield
UK 2-year gilt yield
‘We need to put the period of high inflation firmly behind us,’ Bank of England governor says
Andrew Bailey, governor of the Bank of England (BOE), during the Monetary Policy Report news conference at the bank’s headquarters in the City of London, UK, on Thursday, Feb. 1, 2024.
Bloomberg | Getty Images
Bank of England Governor Andrew Bailey said the decision to lower interest rates on Thursday was “finely balanced,” characterizing it as “very welcome news.”
“The U.K. economy has been stronger in recent months,” he noted during a press briefing, stating that Britain must emerge from a period of price growth and avoid reigniting inflation, if interest rates are cut too rapidly.
“We need to put the period of high inflation firmly behind us,” he said, stressing that Britain had “come a long way” in taming the print to the Bank of England’s 2% target.
— Ruxandra Iordache
Services inflation remains an area of concern, Bank of England governor notes
Bank of England Governor Andrew Bailey warned that stubborn services inflation remains an area of concern for the British central bank, suggesting that the print could rise further in August before dipping in the second half of the year.
“We need to watch services inflation carefully,” Bailey told a press conference on Thursday.
He noted, however, that volatile elements like airfares and hotel prices, should be looked past to get a more accurate view of underlying price movements.
“This do not mean we should adjust our course with every data surprise that comes in,” he added.
— Karen Gilchrist
Sterling falls to one-month low
The British pound fell 0.76% to hit a one-month low against the U.S. dollar shortly after the Bank of England’s announcement of an interest rate.
Sterling was last seen trading at $1.2763 at 12:10 p.m. London time.
— Karen Gilchrist
Bank of England interest rate reduction to ‘bring a huge collective sigh of relief,’ strategist says
The Bank of England’s Thursday decision to lower interest rates will “will bring a huge collective sigh of relief to consumers and businesses up and down the country,” according to Lindsay James, investment strategist at Quilter Investors.
She highlighted the 5-4 split of the decision among members of the Monetary Policy Committee, stressing that the British central bank is “making it clear to everyone this will not be a speedy journey on the way back down as it does not want to cut too quickly or by too much and risk a fresh inflationary spiral.”
James noted that the Labour government appears to be aware of the urgency to deliver economic growth, noting that this approach has so far been “viewed reasonably positively by investors, who have first and foremost welcomed the stability a new government has offered, particularly in relation to Europe and the US where power struggles continue.”
— Ruxandra Iordache
Bank of England warns it will move ahead with caution
The Bank of England said that falling inflation was evidence that its restrictive policy was working, but warned that it would continue to move cautiously going forward, after making its first interest rate cut in more than four years.
“Inflationary pressures have now eased enough that we’ve been able to cut interest rates today,” it said in its Monetary Policy Report on Thursday.
“But this decision was finely balanced. The risks of higher inflation remain. We need to make sure inflation stays low. So we have to be careful not to cut interest rates too much or too quickly,” it added.
— Karen Gilchrist
Britain’s finance minister says interest rate cut is ‘welcome news’
Labour’s Chancellor of the Exchequer Rachel Reeves.
Dan Kitwood | Getty Images News | Getty Images
Rachel Reeves, Britain’s new finance minister, has commented on the Bank of England’s decision to ease monetary policy:
“While today’s cut in interest rates will be welcome news, millions of families are still facing higher mortgage rates after the mini-budget. That is why this government is taking the difficult decisions now to fix the foundations of our economy after years of low growth, so we can rebuild Britain and make every part of our country better off,” she said in a statement.
Reeves assumed her post as part of the new Labour Party government of Keir Starmer, which was elected in July.
— Ruxandra Iordache
Bank of England cuts interest rates by 25 basis points
Bank of England in the City of London as economists and mortgage holders await this week’s interest rate announcement on 28th July 2024 in London, United Kingdom.
Mike Kemp | In Pictures | Getty Images
The Bank of England on Thursday cut interest rates by 25 basis points, lowering its key rate to 5.0% from a 16-year high of 5.25%.
Policymakers voted 5-4 in favor of the reduction, in what had been widely viewed as a close call.
— Karen Gilchrist
Pound struggles ahead of decision
The British pound was 0.6% lower against the U.S. dollar less than an hour out from the Bank of England’s midday announcement, and 0.3% lower against the euro.
Blue-chip stocks on the FTSE 100 index were down 0.13% at 11:15 a.m. in London.
— Jenni Reid
Bank Rate has been held at highest level in more than a decade
The Bank of England hauled its key rate, known as the Bank Rate, from 0.1% in November 2021 up to 5.25% in August 2023 to tackle rampant inflation.
Interest rates were last at that level in 2008, before they were brought rapidly lower as central banks around the world embarked on a long stint of monetary easing to drive stimulus in the wake of the Great Financial Crisis.
— Jenni Reid
Bank of England likely to give a ‘tentative’ rate cut, StanChart strategist says
Steven Englander, head of Global G10 FX research and North America macro strategy at Standard Chartered Bank, discusses the upcoming decision.
Wage pressures have increased since last meeting: Moody’s
Wage growth is a concern that has been flagged repeatedly by the Bank of England — and the new U.K. government’s announcement this week of an above-inflation pay rise for the public sector may not have helped matters, David Muir, economist at Moody’s Analytics, told CNBC by email.
“For the hawks on the [Monetary Policy] Committee, concern that wage growth is uncomfortably high is likely to be even higher after the government’s recent decision to award robust pay increases to public sector workers. But even if rates remain on hold for a further month, we see a majority for a cut by the September meeting, when it will be clearer that upside risks to inflation are receding,” Muir said.
The Labour Party took office in early July after defeating the Conservatives in an election.
— Jenni Reid
UK rate decision ‘going to be close’, Goldman Sachs says
Goldman Sachs’ chief European economist said Thursday that the Bank of England’s monetary policy decision is “going to be close” while suggesting that a rate cut may win out.
Jari Stehn said policymakers were likely to “look through” volatile services inflation and instead focus on underlying progress in the economy.
“We think when you look at the totality of that data, it’s probably enough for them to cut. But, as you say, it’s going to be pretty close because it depends a little bit where you look in terms of the data,” he told CNBC’s “Squawk Box Europe.”
— Karen Gilchrist
Middle-ground voting members to swing BOE’s decision
Huw Pill, chief economist at the Bank of England, during a Bloomberg Television interview in London, U.K., on Friday, Feb. 4, 2022.
Bloomberg | Bloomberg | Getty Images
The Bank of England’s Monetary Policy Committee contains nine members who vote on setting the key Bank Rate — Governor Andrew Bailey, Chief Economist Huw Pill, three deputy governors (Sarah Breeden, Clare Lombardelli and Dave Ramsden), and four external members appointed by the U.K. finance minister (Megan Greene, Swati Dhingra, Jonathan Haskel and Catherine Mann).
As in any rate-setting committee, there are more hawkish members — such as Haskel, who said in a recent speech he felt more evidence of disinflation was needed before reducing rates — and more dovish ones like Dhingra and Ramsden, who have already voted for rate cuts in recent meetings.
“We expect a 6-3 vote in favour of a rate cut this Thursday,” analysts at ING said in a note earlier this week.
“Two members voted for a cut in June, and it looks like at least two, perhaps three of the external members are highly reluctant to cut just yet. That leaves four or five in the middle, and history suggests they tend to move as a group.”
“In other words, don’t look at June’s 7-2 decision to keep rates on hold and think that means we couldn’t get a majority in favour of a cut this week,” they said.
— Jenni Reid
Why the BOE’s interest rate decision is on a knife-edge
Before the European Central Bank cut interest rates at the start of June, policymakers spent weeks clearly signaling their intention to do so in speeches and interviews.
While they have had to read between the lines a little more, traders are now near-certain the U.S. Federal Reserve will begin its own path of rate cuts in September.
Just few hours ahead of the Bank of England’s August meeting, however, market pricing had slipped to a 55% probability of a rate cut from the central bank before rising to around 61% — with analysts speaking with little confidence about the decision.
Bank of England Governor Andrew Bailey attends the central bank’s Monetary Policy Report press conference at the Bank of England, in London, on May 9, 2024.
Yui Mok | Afp | Getty Images
One reason for the uncertainty and relative lack of strong signaling from the BOE is that the members of its voting Monetary Policy Committee are divided.
The MPC described its decision to hold rates in June as “finely balanced,” with some members concerned by wage growth and the elevated rate of services inflation, and others more focused on the broader disinflationary trajectory.
Another factor that has muddied the waters for those trying to guess its next move has been the six-week period from May 23 to July 4 in which the U.K. held a general election campaign, restricting central bank communications — including across its June 20 meting.
Read more here.
— Jenni Reid
