Sat. Dec 2nd, 2023

Bank of England set to hold rates again, but markets see no cuts on the horizon

LONDON — The Bank of England is widely expected to keep interest rates unchanged on Thursday, as data continues to show moderating price pressures and weakening economic activity.

As of Thursday morning in London, the market was pricing around an 89% probability of a second consecutive hold, after the Bank ended a run of 14 straight hikes in September with a surprise 5-4 vote among members of the Monetary Policy Committee.

U.K. inflation came in at 6.7% in September, unchanged from the previous month and considerably higher than in other G7 economies. Britain’s inflation remains on a general downward trajectory.

Meanwhile, recent PMI data points to a soft economic growth outlook, while the labor market, a key indicator for the MPC, has shown signs of loosening.

The S&P Global/CIPS flash PMI (purchasing managers’ index) reading for October reflected that business activity decreased for the third straight month in October and posted its largest monthly decline since January, recording lower output in both the manufacturing and services sectors.

New work and backlogs of work declined, suggesting a lack of pressure on business capacity, while private sector employment fell for the second month in a row and lower confidence in the year-ahead business outlook resulted in hiring freezes. Business optimism sank to its lowest point in 2023, the S&P Global report said.

“U.K. economic activity appears to have slowed further, the housing market is weaker, consumer spending is falling, and inflationary pressure is showing further signs of dissipating. It’s only wage growth that has surprised to the upside, but this is unlikely to persist given other indicators of labour market weakness,” said Mike Riddell, head of macro unconstrained at Allianz Global Investors, on Tuesday via email.


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