BoE to cut interest rates just once more this year, held back by resilient inflation, growth: Reuters poll

By Anant Chandak and Shaloo Shrivastava

BENGALURU (Reuters) -The Bank of England will cut interest rates by a quarter-point once more this year and then again in early 2026 as a resilient economy generates persistent inflation, according to most economists in a Reuters poll who have largely not changed their outlook in the past month.

Earlier this month the central bank cut Bank Rate by 25 basis points to 4.00% after a rare second round of voting, in a 5-4 split in the Monetary Policy Committee. Governor Andrew Bailey said easing should not happen “too quickly or by too much.”

An unexpected surge in inflation to 3.6% in June prompted the BoE to lift its forecast for it to peak at 4.0% this quarter. Data due on Wednesday are likely to show inflation, which the BoE targets at 2.0%, rose further in July to 3.7%.

But economists in the poll still expect inflation to peak around current levels, suggesting most have not made changes to their forecasts during August, which tends to be a quiet month with many away on summer holidays.

Fifty of 62 economists polled August 13-19 said the BoE will cut Bank Rate by 25 basis points once more this year, most likely at the November meeting which coincides with the bank’s own forecasting round. Nine expected the central bank to remain on hold.

Interest rate futures contracts are pricing in the next rate cut in early 2026.

“Right now the Bank of England is really on a knife-edge in terms of whether it wants to cut interest rates further. We think the disinflationary momentum, particularly in the wage data, will be just about enough to tip the MPC into cutting rates in November. I wouldn’t be surprised to see continued split votes – two-way votes, three-way votes,” said Chris Hare, senior economist at HSBC.

“The risk is we do ultimately get 4% inflation, coupled with the risk wage growth doesn’t ease back in the way we expect. If we see indicators of inflation expectations being even more uncomfortably elevated than they are… it would increase the risks of the majority of the MPC opting to pause for the time being.”

Official data showed overall average weekly earnings, excluding bonuses, grew 5% in the three months to June. A rate of 3% is seen as consistent with the BoE’s 2% inflation target.

Britain’s economy has also defied predictions of a slowdown.

A surprise 0.3% expansion last quarter put Britain ahead of its G7 peers for the first half of the year. Forecasts suggest steady growth of 1.1% this year and 1.2% in 2026 – a pace broadly similar to last year.