Bank of England to make ‘finely balanced decision’ on whether to cut interest rates at midday – business live

Rolling coverage of the latest economic and financial newsSpeculation about the timing of rate cuts is reaching fever pitch, reports Kathleen Brooks, research director at XTB:Interest rates are expected to remain on hold, and there is only a 24% chance of a rate cut, however there is a whisper, that is getting louder, that the BOE should surprise markets and cut rates today due to the deteriorating economic backdrop, and weaker than expected inflation for September that did not reach the BOE’s expected peak of 4%.We expect the BOE to keep rates on hold on Thursday, since the most prudent course of action is to wait until after the Budget. This is expected to see unprecedented tax rises, which could slow growth and may boost inflation if fuel duty relief is scrapped or if VAT is increased.We expect the Bank of England to cut rates by 25bp at its 6 November meeting and to remove from its guidance any reference to interest rates being “restrictive” and the need for further cuts. We believe weaker data over the past month support a rate cut, but that there is probably only one voting configuration (5-4) that can deliver it. Swing voters Bailey, Breeden and Ramsden will likely be needed to vote for a cut to get it over the line. We think a rate cut is a close call (we’d put our probability at just 60%), and note that consensus forecasts and market pricing are for no change in rates. The greatest risk to our November cut view is that the MPC opts to wait for substantially more news published ahead of the December meeting. Continue reading...

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