The Bank of England is expected to deliver its final interest rate cut of the year at its meeting next week, with signs of slowing inflation starting to emerge. Deutsche Bank analysts expect the decision to be made by a very close vote.
According to Deutsche Bank, the MPC vote is likely to end 5-4, with Governor Andrew Bailey playing a key role as the deciding vote. The split reflects a growing divergence of views among policymakers on the risks to inflation and the need for further easing.
UK inflation fell to 3.6% in October, in line with the BoE’s expectations although still above its 2% target. A handful of officials, including Clare Lombardelli, have warned that further cuts could reignite price pressures and signal the easing cycle is nearing its end.
Dave Ramsden, on the other hand, thinks a gradual easing of policy restrictions is still warranted, as he sees no evidence yet that inflation will fall as expected.
The market is now placing a near 90% probability on a 25 basis point cut on December 18. However, Deutsche Bank warned that even if a cut occurs, the BoE may raise the threshold for the next step by emphasizing the need for stronger evidence of disinflation.
