DAVY VIEW

As it did in August last year, the Bank of England’s Monetary Policy Committee (MPC) voted narrowly for a cut to Bank Rate. This is despite solid economic growth, above-target inflation and still-high wage growth. The cut has been interpreted as hawkish given the narrowest of decisions compared to market expectations of a solid 7-2 majority in favour of a cut. We have noted for some time that only one cut in H2 looked likely given inflation continues to increase and prevailing economic conditions in the UK do not especially support the quarterly pace of rate cuts. Based on the latest Bank of England forecasts for high inflation – especially services inflation – we see stronger justification for this outlook.