DWS: The time is not yet ripe for a cut

DWS: The time is not yet ripe for a cut

June 20, 2024

Interest Rates Monetary policy UK
Rente (03)

Katrin Löhken, UK Economist at DWS, responds to BoE's interest rate decision:

'As expected, the Bank of England’s (BoE) June meeting concluded without changes. As in May, two committee members voted in favor of a rate cut but were outvoted by the majority of the seven other members who preferred to keep rates on hold.

While the committee generally observes progress in combating inflation, risks for second-round effects are still lingering. In May, services prices have come in stickier than expected, and wage growth is still holding up firmly despite a cooling labor market. Consequently, the BoE’s policy is still led by cautiousness and data-dependency.

However, it appears that the view within the central bank committee is shifting toward an easing bias, despite existing risks. Some members who voted for unchanged interest rates this time already stated that their policy decision was ‘finely balanced’.

Consequently, we continue to anticipate a first rate cut in August, as long as the inflation and wage data published by then remain in line with expectations. This would mark the first cut since August 2023 and would still leave Bank Rate in the restrictive range. In view of the lingering uncertainty about inflation stickiness, we expect the BoE to pursue a gradual path of rate cuts. After the August move, we only see one more rate cut before the end of the year.'

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