Commentary: Interest rate cut from Bank of England

Commenting on the interest rate cut from the Bank of England, William Marshall, Chief Investment Officer – Hymans Robertson Investment Services (HRIS) says:

“Today’s decision from the Bank of England’s Monetary Policy Committee to cut interest rates would have been a close call. Yes, the headline inflation figure is back at the BoE’s 2% target, but there is still a bit of doubt around the sustainability of low inflation.

The main drivers of falling inflation has, so far, been lower food and energy prices. The more domestically focused measures of inflation, like core inflation and services inflation, are still at 3.5% and 5.7% respectively and remained level in the June data. Now that energy and food inflation has little left to fall (energy bills are expected to increase this autumn) the headline figure will likely start to rise over the next few months.

That being said, the labour market is showing signs of loosening, with wage growth slowly, but consistently, falling and unemployment rising. The BoE has also pointed to other labour market measures implying that there is now less of a concern around the risks of a wage-price spiral.

The 0.25% cut today continues to leave the BoE in restrictive territory – still with its foot on the economic brake, but just to a lesser extent than before. This helps to justify a small cut to rates. We expect the BoE to continue to cut at a slow pace until confidence grows that inflation is persistently around the 2% mark.”