Bank of England trims interest rates

But policymakers offer no guidance on the prospect of further cuts

01 August 2024

Welcome to the era of the half-hearted rate cut. First the European Central Bank (ECB) cut rates, only to see disinflation take an inconvenient breather and now the Bank of England has voted to cut rates to 5%, but only by the narrowest of margins and with plenty of hedging and caution around the future pathway. As Governor Bailey said, "I'm not giving you any view on the path of rates to come...we will go from meeting to meeting." Gone are the days when central banks could offer forward guidance with any certainty, now rates will be managed on a much more reactionary basis. While headline inflation is just 2%, and this is what gave the Governor the incentive to cast his deciding vote in favour of a cut, core CPI in the UK remains at an uncomfortable 3.5%. And the inflation-conducive reality is that 2.5 million people are out of the labour market due to sickness, housing pressures remain acute, the currency is depreciating again, government spending is high (though you would only know it to look at your tax bill) and consumer confidence is rising. As unsatisfying as Governor Bailey's reactionary policy is for traders and market watchers looking for clear narrative arcs, it might prove sensible given the balance of risks the UK faces.