BoE: Over the hump? – Standard Chartered
|Recent data flow – particularly wage growth and CPI – supports our December rate cut view. Risk of Nov cut rising but MPC is likely to wait for budget; risk of delay to Feb depends on incoming data. Fiscal tightening, labour market slack and disinflationary trend should support BoE cuts in 2026, Standard Chartered's economists report.
MPC unlikely to be aligned just yet
"Recent UK data releases support our view that the Bank of England’s (BoE) next interest rate cut will be in December – private sector wage growth was below expectations in August, most CPI inflation metrics surprised to the downside in September, and growth data – such as August GDP % m/m and September PMIs – points to weaker H2 economic momentum. Moreover, news flow around the 26 November budget has been broadly supportive of our dovish BoE view, with the government hinting that it may increase the size of its fiscal cushion against its targets (implying greater overall fiscal tightening) and could structure policy changes to provide a deflationary impulse (such as via a VAT cut to energy bills)."
"Inflation is still almost double the BoE’s 2.0% target, and various Monetary Policy Committee (MPC) members have made hawkish statements in the past month. A December cut is therefore not inevitable. It is possible that inflation could prove stickier for longer, and the recent loosening of the labour market may prove temporary. However, we continue to see a combination of factors supporting further BoE easing. The budget should provide a growth headwind while at the very least offering no upside inflation risks. The margin of slack in the labour market should weaken wage bargaining pressures, helping private sector wage growth to continue moderating. This should feed through to a steady, albeit gradual, deceleration in services inflation. We therefore hold on to our out-of-consensus view that the BoE will cut three additional times in 2026."
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