Barclays now anticipates that the Bank of England (BoE) will maintain current interest rates at its December meeting, revising its earlier projection of a rate cut. This adjustment follows the

central bank’s cautious communication emphasizing uncertainty and a gradual approach to policy adjustments.

On Thursday, the Bank of England reduced interest rates for only the second time since 2020 and signaled that any future rate cuts would likely proceed at a measured pace. The BoE’s forecast took into account the British government’s latest budget, which it expects will contribute to higher inflation and economic growth.

“The main messaging from the press conference was repeated emphasis on the extent of uncertainty at the current juncture: uncertainty around the impact of the fiscal package; uncertainty on the current state of the labour market,” Barclays noted in its report on Thursday.

The bank believes that this uncertainty, which is unlikely to subside in the near term, combined with the BoE’s emphasis on gradual policy shifts and its inflation projections, will likely lead to a decision to hold rates steady in December.

Barclays further indicated that any delay in rate reductions would necessitate a more aggressive cutting cycle later. The bank predicts that the BoE will begin cutting interest rates by 25 basis points in February 2025, followed by additional 25 basis point cuts in May, June, August, and September, ultimately reaching a terminal rate of 3.50%.

The BoE has stated that the government’s fiscal plans could add nearly half a percentage point to inflation at its peak, extending the time needed to sustainably return to the 2% inflation target by approximately one year. Photo by David Edgar, Wikimedia commons.