Markets expect Bank of England to cut base rate in August

The Bank of England (BoE) is widely expected to lower its base interest rate to 4% when officials gather next month, as markets price in more than an 80% chance of a 25-basis-point cut.

Bloomberg Economics’ BOEspeak model indicates a shift toward a more dovish tone from policymakers, largely driven by growing signs of slack in the UK labour market.

BoE governor Andrew Bailey, speaking Tuesday at a conference in Sintra, Portugal, reinforced expectations of a slow path to monetary easing.

“I think that the path of interest rates will continue to be gradually downwards,” he said in an interview with CNBC. “I haven’t changed my mind on that.”

Still, Bailey cautioned against assuming an August move is guaranteed, citing ongoing concerns over inflation. “We’ll see,” he said when pressed on the likelihood of a rate cut at the next meeting. 

“There will be no sustained growth unless we have stable, low inflation,” Bailey added. “That’s a sort of almost written on the heart of all central banks. I’m not trying to, in any sense, crush growth.”

In June, the central bank left its benchmark rate unchanged at 4.25%, maintaining a cautious approach amid persistent inflation and patchy economic data. Despite some easing in global conditions — including stabilising markets and falling oil prices — Bailey highlighted lingering business uncertainty stemming from geopolitical risks.

“That increase in uncertainty and unpredictability is definitely coming through in terms of activity and growth,” he said. “When I go around the country talking to businesses, which I do a lot, what they tell me is that they are putting off investment decisions.”

Bailey also flagged a potential change in the central bank’s quantitative tightening strategy. While the current pace of gilt sales stands at around £100 billion annually, he described a reduction in the pace of balance sheet unwinding as a “live decision.” Analysts suggest this could fall to around £80 billion in the year ahead, amid concerns about weak demand for long-dated government bonds.

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