BoE: Quarterly bound – Standard Chartered

BoE to cut the base rate by 25bps on 7 August, but another split MPC is likely. Divergent signals from the labour market and prices likely to keep the BoE on a quarterly easing schedule. As disinflation resumes, likely in Q4, labour-market loosening should support further cuts to 3.00% in 2026, Standard Chartered's economist Christopher Graham reports.

Slow and steady, but all the way to 3.00%

"We expect the Bank of England (BoE) to deliver a 25bps cut to 4.00% on 7 August, the fifth cut of its monetary easing cycle. The data have been mixed since the Monetary Policy Committee (MPC) kept rates on hold in June. Inflation surprised to the upside in June (3.6% y/y vs Bloomberg consensus of 3.4%); meanwhile, the labour market continues to show signs of loosening, with unemployment rising, vacancies falling, payrolled employment declining (albeit more slowly than previously assumed) and wage growth moderating. With GDP contracting in April and May, and retail sales and industrial production both signalling lacklustre economic activity in Q2, we think there is sufficient evidence for the majority of MPC members to vote for another 25bps cut."  

"However, a split MPC seems likely. Given the resurgence in inflation, and the risk of second-order effects, we expect a couple of MPC members vote for a hold; at the same time, persistently weak labour-market data raises the risk of one or two members voting for a 50bps cut. A divided MPC would support our view of a gradual approach to further easing, with the quarterly pace of cuts (in play since the start of the easing cycle) continuing."

"Once the disinflationary process shows clear signs of restarting – likely in Q4 this year – we think labour-market concerns will support ongoing rate cuts in 2026. We therefore maintain our below-consensus view that the base rate will fall to 3.00% by Q3-2026, c.40bps below current market pricing. Governor Bailey is unlikely to commit to a specific path for rates at this week’s press conference, citing both inflation and labour-market risks, and the need to monitor incoming data closely. We do not expect material changes to the BoE’s economic or inflation forecasts."