Bank of England Rates Decision: What to Expect on June 20

Morningstar

Unlike May’s meeting, June 20’s decision will just be accompanied by a brief statement rather than the full monetary policy report and press briefing. So if there is no change to interest rates this week, there will be little guidance on when this is likely to happen.

Alongside the statement, one clue will come from the voting patterns: last month seven members of the monetary policy committee voted to hold, while two voted for a cut. It’s likely that more of the MPC join the cut cohort, but probably not enough to force a decision.

Money markets, as measured by overnight index swaps, suggest that August 1 is still the most likely date for the Bank of England to make its first rate cut since 2020.

August seems more likely from the point of view of the Bank’s calendar; the quarterly monetary policy report and press conference give policymakers more scope to explain decisions.

General Election is Hard to Ignore

The looming election is also a factor. While the Bank is proud of its political neutrality, common sense would lean towards waiting until after the election on July 4 to make a decision on interest rates. Opinion polls suggest a new government will be in power by the time the Bank next meets in August, and that will change the dynamic of economic forecasting, with new tax and spending plans in place.

In recent years, the Bank’s monetary policy and government fiscal policy have notionally worked in tandem. While shadow chancellor Rachel Reeves has ruled out an emergency budget on coming to power, the Labour party is likely to make significant changes to the economy this and next year.

But there is the chance of a surprise cut in June, says Morningstar’s European market strategist Michael Field, with inflation’s fall backing the case.

“Although the majority of economists are predicting the first rate cut in August, that majority is slim. In fact, a recent Reuters poll had more than 40% of economists suggesting this long-awaited rate cut would actually come in June.” 

Does the Data Back a Rate Cut?

In terms of UK economic data, not too much has changed to tip the balance towards a cut. On the side of “hold”, services sector wage growth, a concern of Bank officials, is still high. But May inflation is expected to have hit the 2% target, according to FactSet consensus, in

The full article is available here. This article was published at Morningstar Economics.