United Kingdom: BoE holds but risks later cuts – Societe Generale

Societe Generale’s UK team notes weakening housing demand as mortgage approvals fall to late-2023 lows, while business lending remains firm and wage expectations show limited second-round effects. They expect the MPC to maintain a wait-and-see stance, keeping rates higher for longer as energy-driven inflation rises, which could delay the first rate cut currently projected for 1Q27.

Higher-for-longer stance under scrutiny

"Last week in the UK, the BoE's Money and Credit report showed that mortgage approvals fell to their lowest level since late-2023, against the backdrop of higher mortgage rates, a trend that is likely to continue."

"However, lending to businesses remains firm, suggesting that the recent uptick in business investment could extend into 2H26."

"MPC members are likely to reiterate their wait-and-see approach at the Treasury Committee hearing on Tuesday, although they may comment on whether the recent increases in energy prices have altered their thinking."

"Central banks have two options to address the forthcoming rise in headline inflation, driven by the recent increase in energy prices, and the associated risk of second-round effects: either deliver a 25bp rate hike or keep rates higher for longer."

"However, this could force us to push back the timing of the first rate cut, which we currently expect in 1Q27."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)