BOE Likely to Cut Rates Despite Spike In Inflation

The Bank of England (BOE) is likely to deliver another interest rate cut on Thursday, as tax hikes and wary consumers weigh down Britain’s economy and prompt firms to slow hiring, Tom Rees and Craig Stirling reported for Bloomberg News.

BOE Governor Andrew Bailey continues to guide markets toward a path of gradual rate cuts.

The Monetary Policy Committee is widely expected to reduce its benchmark rate by 25 basis points to 4%, maintaining its once-a-quarter pace of cutting.

In contrast to the caution of the U.S. Federal Reserve—which held borrowing costs steady again—the BOE is looking past the fastest inflation in 17 months and instead focusing on mounting growth concerns, after back-to-back contractions in gross domestic product and rising job losses this spring.

Employers have scaled back hiring after being hit by measures in the Labour government’s first budget, which included a £26 billion ($34.5 billion) payroll tax hike and a sharp increase in the minimum wage.

“We think the central bank will be cautious about signaling more rate cuts are in the offing—inflation has surprised to the upside, and price expectations are elevated,” said Dan Hanson, chief U.K. economist for Bloomberg Economics.