The decision is likely to be a finely balanced one though, with expectations of the bank rate vote being 6-3 or 5-4 in favour of a rate cut. But what are traders pricing in for the decision currently? The OIS market shows that there is a ~61% probability priced in, with roughly 55 bps of rate cuts for the year.
After the August decision, the BOE still has three meetings left for the remainder of 2024. That being in September, November, and December. So, there is still time to fit in the supposed two rate cuts priced in by traders at the moment.
Taking that into consideration, it might not matter too much if the BOE cuts this week or in September. That especially if they do send a more dovish signal at the meeting on Thursday. And even more so if the votes look to be close and the language is leaning towards moving to a rate cut at the next meeting.
Of course, the kneejerk reaction is to see the pound jump if the decision is to keep the bank rate on hold this week. But there is a strong likelihood to see that reaction quickly faded as well, unless the BOE sends a message that they are still very much uncomfortable with price pressures at present.
Just take note that the previous decision in June saw the central bank comment that the decision was already "finely balanced", even if it was a 7-2 vote in favour of keeping the bank rate unchanged. Besides that, there was no easing language put in as the statement consisted of:
- Need to be sure inflation will stay low before cutting rates
- Monetary policy will need to remain restrictive for sufficiently long to return inflation to target
- BOE remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably
- Will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole
So, any changes to that will help to rebuff the two rate cuts priced in for the months ahead even if there is no rate cut in August. In other words, the details is the thing to look out for with the decision this week.
