Commenting on the Bank of England’s (BoE) interest rate hold, Chris Arcari, Head of Capital Markets, Hymans Robertson says:

“The Bank of England held interest rates today at 5% pa today, but we believe the MPC will cut rates again this year. Given elevated core and services inflation we still Expect the BoE to reduce rates at a gradual pace. Looking further ahead the market is already pricing a fair degree of further cuts, anticipating the bank rate to fall to 3.3% pa by the end of 2025.

“On the one hand, headline inflation remained unchanged in August, at 2.2% year-on-year, while a weakening PMI output price balance points to inflationary pressures subsiding. However, on the other hand, core inflation rose more than expected, to 3.6% year-on-year in August, from 3.3% in July , while solid growth is supporting strong labour markets: while the year-on-year pace has eased in recent months, average earnings excluding bonuses still rose 5.1% year-on-year in the 3 months to end July – even allowing for quite rosy productivity growth assumptions, this level of earnings growth is too high to be consistent with the BoE’s 2% target. Low unemployment and solid wage growth are, in turn, keeping inflation in the more labour-intensive services sector elevated which, rose to 5.6% year-on-year in August, from 5.2% in July.”