The Bank of England (BoE) is expected to cut interest rates soon, likely in August, if inflation and wage data align with the Monetary Policy Committee’s (MPC) May forecasts, according to Michael Saunders, a former MPC member. Saunders, who served on the MPC from 2016 to 2022, mentioned that the BoE has signaled a willingness to cut rates if the data support it.
Saunders indicated that if the conditions are met, the internal members of the MPC would likely vote as a bloc for the cut. The MPC consists of nine members, with five from within the BoE and four external members. Last week, the BoE kept its bank rate at a 16-year high of 5.25% ahead of the July 4 national election, with some policymakers stating that the decision was “finely balanced.”
Currently a senior adviser at Oxford Economics, Saunders also discussed the potential market reaction to a Labour party win in the upcoming election, expecting relief among markets and investors. He forecasted that Labour would implement tough spending plans in its autumn budget, with only modest tax hikes, such as on private school fees.
Regarding the BoE’s monetary policy, Saunders anticipated that the central bank would cut rates seven times by the end of 2025, in 25 basis point increments, bringing the main interest rate close to his neutral rate of 3.5%. He projected two to three cuts this year, with the remainder next year, depending on monthly data.
Market expectations for rate cuts have diminished significantly over the year, with now only two 25 basis point reductions anticipated for 2024.
Tags: #BankOfEngland #InterestRates #MonetaryPolicy #MichaelSaunders #EconomicForecast
