Key events
Introduction: Will Bank of England cut interest rates today?
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It may not quite be on a knife-edge, but today’s Bank of England decision on interest rates is providing plenty of uncertainty for the markets to chew on.
At noon, the Bank’s monetary policy committee will reveal its latest decision on interest rates, which are currently set at 4%.
And while the odds are in favour of a hold, the money markets last night indicated there is a one in three chance that base rate will be cut to 3.75% today. That would be the sixth cut to borrowing costs since August 2024, as the Bank eased back on the restrictive policy imposed to cool inflation.
It’s certainly a tricky decision for the Bank. Although still too high, UK inflation was lower than expected in September at 3.8% – perhaps a sign that cost of living pressures are starting to cool.
Policymakers will also have noted that Rachel Reeves appeared to prepare the ground for tax rises – which would be disinflationary, and hurt growth – in a rare pre-budge speech this week.
Danni Hewson, head of financial analysis at AJ Bell, says:
“It’s possible Rachel Reeves’ surprise press conference on Tuesday was partly a cry for help to the Bank of England. By promising to push down on inflation, she might have been signalling that the Bank didn’t have to wait until after the Budget to cut rates. Whether they do or not is a finely balanced call.
A recent slowdown in wage growth could also persuade some of the Bank’s nine interest rates policymakers to vote for a cut.
Julien Lafargue, chief market strategist at Barclays Private Bank, explains:
“Recent economic indicators – including September’s lower-than-expected inflation, softer wage growth, and signs of slowing activity in Q3 – strengthen the case for the Bank of England to consider a rate cut this month.
However, this would be a very finely balanced decision as the central bank may see the upcoming the Autumn Budget as a key missing piece of the puzzle. Should the MPC decide to stay put, a cut in December would still be on the cards in our opinion.”
The agenda
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8.30am GMT: Eurozone construction PMI for October
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9.30am GMT: UK construction PMI for October
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Noon GMT: Bank of England interest rate decision
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12.30pm GMT: Bank of England press conference
