The Bank of England could cut interest rates next month, after a small rise in the cost of living for August.
City investors reportedly believe that banking chiefs could actually call for a cut in interest rates in September, after CPI rates rose today – but not as much as first feared.
This morning’s data showed the Consumer Price Index (CPI), was 2.2 per cent higher in July, compared with a rise of just two per cent in June, according to official figures from the Office for National Statistics (ONS) – below City forecasts of 2.3 per cent.
The rate of inflation last rose in December 2023, when the CPI went up from 3.9 per cent to four per cent.
The ONS said the main reason for the tick-up in the inflation rate was that gas and electricity prices did not fall as steeply as they had in same month last year.
And the money markets now indicate that there’s a 45 per cent chance that the Bank rate will be cut to 4.75 per cent next month, from its current level of five per cent, and a 55 per cent chance that borrowing costs remain unchanged.
Before this morning’s announcement, there was only a 36 per cent chance that there would be a cut in September, according to City pricing.
Traders reportedly expect there to be two rate cuts seen in the UK by the end of this year – previously, only one cut was fully ‘priced in’, with a second seen as likely.
Aaron Hussein, global market strategist at JP Morgan Asset Management, told the Guardian that inflation appeared to be going in the right direction, but it was better to tame expectations.
He said: “Today’s inflation print will reassure members of the committee that voted for a rate cut last month that they may finally be taming the inflation beast. While headline inflation ticked up as favourable base effects fade, services inflation – a crucial measure of domestically generated inflationary pressure – moderated. This, coupled with moderating wage growth, suggests that inflation may finally be heading in the right direction.
“However, with economic growth on a cyclical upswing and the labour market remaining resilient, there remains a risk that cutting too quickly will fan the inflation flames. We, therefore, think it’s unlikely that the Bank will follow up its August cut with a cut in September. Absent any material shock to growth, this cutting cycle is likely to be gradual, with a quarterly cadence most likely.”
Here is what it all means.
When is the next interest rate announcement?
The next CPI release date is expected on September 18, which will be the data covering August.
The Bank of England then have a team to look at the evidence and make a decision about every six weeks. They are known as the Monetary Policy Committee. Every three months, they give detailed reasons behind their decisions in a Monetary Policy Report. The MPC will announce its next decision on interest rates on Thursday, September 19.
Have interest rates increased?
In June, interest rates remained at 5.25 per cent for the seventh meeting in a row. The committee makes a decision about interest rates every six weeks and publishes the background to it.
You can find out more about why interest rates rise in our guide.
When is the next interest rates announcement?
The MPC meets eight times a year to discuss whether it should raise or cut interest rates, or keep them the same.
The remaining two meetings after September will take place on the following dates:
- November 7
- December 19
