Chris Arcari, head of capital markets at Hymans Robertson suggested the next cut could take place in November, and possibly also in December.
Breaking down the recent inflation and “disinflation” figures, Mr Arcari said: “On the one hand, headline inflation remained unchanged in August, at 2.2 percent year-on-year, while a weakening PMI output price balance points to inflationary pressures subsiding.
“However, on the other hand, core inflation rose more than expected, to 3.6 percent year-on-year in August, from 3.3 percent in July. While solid growth is supporting strong labour markets, the year-on-year pace has eased in recent months, average earnings excluding bonuses still rose 5.1 percent year-on-year in the three months to the end of July – even allowing for quite rosy productivity growth assumptions, this level of earnings growth is too high to be consistent with the BoE’s two percent target.
“Low unemployment and solid wage growth are, in turn, keeping inflation in the more labour-intensive services sector elevated which, rose to 5.6 percent year-on-year in August, from 5.2 percent in July.”
Mr Arcari continued: “Given the mixed bag of ongoing disinflation, but from elevated levels and with signs of stubbornness in some key measures, we still think the BoE is likely to signal further rate cuts, but at a gradual pace that slowly makes policy less restrictive, as opposed to adopting stimulative settings.
“Slightly further out, the market is already pricing a fair degree of further cuts, anticipating the bank rate to fall to 3.3 percent pa by the end of 2025.”
