Bank of England Likely to Take a Cautious Stance on Interest Rate Cuts Amid Tight Labor Market

The Bank of England may proceed cautiously with interest rate cuts as the U.K. labor market remains exceptionally tight and services inflation remains high, according to trading platform Ebury. Recent data revealed that the U.K. unemployment rate unexpectedly dropped in the three months leading up to June, and wage growth continued at a robust pace. This poses a significant challenge to the BOE’s goal of sustainably achieving its 2% inflation target, notes Ebury strategist Matthew Ryan.

"Swap markets are currently pricing in roughly a one-in-three chance of another rate cut in September," Ryan states. "However, we maintain our forecast that the BOE will hold off on further reductions until November, with subsequent cuts likely to occur on a quarterly basis."