That’s particularly true when you remember that the jobs market is still cooling. The unemployment rate nudged up to 4.8%. And payrolled employee numbers are still falling each month, albeit more gradually than earlier in the year. Surveys have turned marginally brighter on average, which suggests we’re past the peak impact of April’s tax hikes.
So far, so dovish. The only real fly in the ointment is that public sector pay growth is picking up. But this is linked to the sizeable real-terms increases in government spending in the current fiscal year, something that’s currently not planned to be repeated next year. Assuming that’s confirmed in the forthcoming Autumn Budget – a budget that’s likely to be dominated by tax hikes – then this should add to the case for further Bank of England easing.
As for the timing, a November rate cut now looks unlikely. But December is in play, given that this meeting falls after the budget. And assuming we see further falls in wage growth, coupled with a bit of undershooting on the Bank’s services inflation forecasts, then a Christmas rate cut is possible.
However, we think February is more likely, giving the Bank an extra month’s worth of data to look at before acting. We expect three cuts in 2026, which is more than markets are currently pricing.