BoE sows scepticism on August cut as it holds rates

The Bank of England didn’t rock the boat too much following its June meeting. Policymakers described the UK economy as “weak”, while flagging the recent softening in Britain’s labour market and noting that they are keeping tabs on what this means for inflation.

The vote on rates was also slightly more dovish than markets had anticipated, with three officials (rather than two) believing that the cooling in the jobs market warranted an immediate cut.

Yet, the BoE still appears to be in no hurry to speed up the pace of policy loosening. Importantly for markets, the phrase that cuts will be both “gradual and careful” was retained in the statement - there was some speculation that this could be either tweaked or jettisoned.

While this doesn’t necessarily mean that the bank won’t lower rates again at the next meeting, it does at least sow a degree of scepticism around an August cut.

We think that the MPC is stuck in a quandary. While a weakening in the jobs market should allow for a couple more cuts during the rest of the year, we think that rising inflationary pressures will deter the committee from easing policy any quicker than that.