With inflation holding steady last month at 2.2%, which is below the 2.4% level the Bank of England expected, will Threadneedle Street cut interest rates again today?
A cut to interest rates again would be a welcome move for property buyers, sellers, and of course, estate agents.
UK estate agents have already reported more purchaser interest after last month’s BoE rate cut, with buyer enquiries increasing significantly in recent weeks.
At the meeting last month, the Monetary Policy Committee cut the Bank Rate to 5% from a 16-year high of 5.25%, in a tight 5-4 vote. But governor Andrew Bailey emphasized “careful” reductions in borrowing costs going forward.
The editor-in-chief of TopMoneyCompare, Russell Gous, said: “Thursday’s base rate decision has split opinions once again. Earlier this week, markets were predicting a 40% chance of a rate cut but [yesterday’s] inflation data has reduced the probability.
“UK inflation held steady at 2.2% in August, but core inflation did jump to 3.6%. With this in mind, it’s likely that committee members will see this as enough of a reason to hold the rate steady, especially when you consider that the BoE has forecasted a rise in inflation at the back end of the year.”
Even if the BoE does keep its main interest rate at 5% today, many economists believe that it will be reduced in November.
Nearly 80% of economists, 49 of 65, polled by Reuters last week, expected one more rate cut this year. While 48 predicted it in November, one said December. The other 16 economists saw two more rate cuts this year.
But despite above-target inflation BoE should not delay the next rate cut, according to IEA Economics Fellow, Julian Jessop, at the free market think tank, the Institute of Economic Affairs.
He said: “The latest UK inflation data were probably not good enough to tip the balance towards an interest rate cut this week, but the case for another move remains strong.
“The headline rate held at 2.2% in August, sticking above the MPC’s 2% target. The core rate [excluding food and energy] rose from 3.3% to 3.6%, led by a renewed surge in services inflation from 5.2% to 5.6%.
“However, most of the pick up reflected a jump in air fares, which are volatile from year to year depending on the timing of school holidays. Services inflation is also still lower than anticipated in the Bank’s latest Monetary Policy Report. There is little sign of the ‘wage-price’ spiral that some on the MPC fear.
“Headline inflation may spike in the autumn due to the increase in domestic energy bills, but the Bank has already signalled that it will look past this temporary effect.
“The bigger picture is that the economy is slowing again, the labour market is cooling, and interest rates are higher than necessary to continue bearing down on inflation.”
Financial markets pointed to a roughly one-in-four chance of a cut after Wednesday’s inflation data, compared with one-in-three the day before.
