Commenting on the Bank of England’s interest rate hold at 5.25%, Ben Farmer, Senior Investment Consultant, Hymans Robertson says:

“Headline inflation may now be back at the 2% target, but this has mainly been driven by falling energy and food prices weighing on the year-on-year comparison. Good news for some, with the energy price cap falling, alongside the price of chocolate (among other things)! However, the Bank of England (BoE) pays closer attention to core inflation – stripping out the volatile energy and food measures – which remains elevated at 3.5%. Other measures that the BoE tracks closely, such as wage growth and services inflation, have also stayed high. As such, the BoE’s decision to hold the base rate steady at 5.25% was widely anticipated and is unlikely to move the dial in markets.

“At the start of the year markets were pricing in six or seven base rate cuts in 2024. After yesterday’s inflation release, this has moved to pricing in one 0.25% p.a. rate cut by the end of 2024, with another potentially to follow in early 2025. That doesn’t feel unreasonable given the Bank of England sets policy on where they think key measures of inflation are going, rather than where they are currently, and that central banks tend to look for more persistent evidence and data before cutting rates than they do when raising them.”