Proactive Investors - The Bank of England will likely cut base interest two more times this year after data showed inflation ticked up at a slower rate than expected in July, analysts say.
Services inflation subsided from 5.7% to 5.2% between June and July, as overall consumer prices edged up from 2% to 2.2%, according to the ONS.
“The decline in services inflation [...] was much bigger than anyone anticipated,” Capital Economics deputy chief Ruth Gregory noted, highlighting the metric as key for policymakers.
“This may not alleviate the Bank’s concerns about persistent price pressures entirely. And it probably isn’t enough to prompt a back-to-back interest rate cut in September,” she added.
“But it does lend some support to our view that inflation will be back below [...] target next year and that interest rates will fall further and faster than markets expect.”
Validus Risk associate Pierre Roke said subsiding services inflation could open the door for up to two further cuts before the year-end, with wider markets also pricing in a similar scenario.
Such expectations are currently for the Bank of England to avoid a cut in September, following August’s reduction, with these coming later in the year.
That said, Deutsche Bank (ETR:DBKGn) analysts argued further labour market and inflation data before rate setters next meet on September 19 could upend these.
“A September rate cut should no longer be off the table,” the bank said, “it’s entirely conceivable to think that we could get multiple more rate cuts this year”.