Investing.com -- Following Thursday’s widely expected 25-basis-point rate cut, markets are now broadly anticipating the Bank of England’s (BoE) next reduction to come in August.
Analysts at Bank of America (NYSE:BAC) (BofA) and UBS have echoed this view, suggesting the central bank will likely pause before easing policy further later this summer.
BofA analysts have indicated that the likelihood of a consecutive rate cut in June has diminished considerably, unless there is a significant downturn in growth or an unexpected drop in inflation.
The BoE’s current approach suggests a need to observe substantial progress in inflation before moving away from its gradual policy stance.
BofA foresees the possibility of inflation falling below their predictions, which could lead to a change in narrative, but not before the second half of the year. They expect rate reductions in August, September, and November, with the terminal rate reaching 3.5%.
On the other hand, UBS has maintained its forecast for a pause in rate adjustments in June, followed by two 25 basis points cuts in August and November, setting the Bank Rate at 3.75% by the end of 2025.
The decision by UBS to stick to its original prediction comes despite a more hawkish vote split and the BoE’s continued guidance for "gradual" easing.
UBS’s baseline scenario, which includes quarterly cuts, serves as a middle ground in light of persistent services inflation, tempered economic growth, and potential disinflationary pressures from U.S. tariffs.
Both financial institutions acknowledge the uncertainties surrounding the final tariff levels in the U.K. and globally, which introduce significant unpredictability into GDP forecasts and the BoE’s rate decisions.
UBS does not dismiss the possibility that the BoE might quicken the pace of rate cuts to every meeting rather than quarterly if the economic impact is more severe than currently anticipated.
Looking further ahead, UBS projects three rate cuts in 2026, in February, May, and August, bringing the terminal rate to 3.0%.