Major brokerages expect no more BoE rate cuts in 2025 after September pause

The Bank of England maintained its key interest rate, prompting major brokerages including Goldman Sachs, Citigroup, and J.P.Morgan to project no further cuts this year, largely due to persistent 3.8% August inflation. While the BoE forecasts inflation to peak at 4% and ease by mid-2027, and markets price in only a 30% chance of another 2024 cut, some analysts, including Barclays and BNP Paribas, still anticipate potential late-year easing contingent on deteriorating economic data.

Analysis

The Bank of England's decision to hold its key interest rate signals a hawkish pivot, driven by persistent inflationary pressures, with the August consumer price index holding at 3.8%, the highest among major advanced economies. This has prompted major brokerages, including Goldman Sachs, Citigroup, and J.P. Morgan, to retract previous expectations, now forecasting no further rate cuts in 2024. The central bank's own projections reinforce this cautious stance, with inflation not expected to return to its 2% target until mid-2027. Market sentiment has aligned with this view, pricing in only a 30% probability of a rate cut by year-end, according to LSEG data. However, a degree of uncertainty persists, reflected in divergent analyst forecasts; Barclays maintains a base case for a November cut, contingent on softer incoming economic data, while BNP Paribas anticipates a December move. This split highlights the BoE's reactive, data-dependent approach and the critical importance of near-term economic indicators in shaping the monetary policy trajectory for the remainder of the year.

Key Decisions for Investors

• Investors should revise UK interest rate expectations to a 'higher-for-longer' scenario, as the consensus among major banks now points to no further BoE cuts in 2024, impacting valuations for UK equities and fixed-income assets.
• Closely monitor upcoming UK inflation and growth data, as the central bank's data-dependent stance means any significant economic deterioration could rapidly re-price market expectations for a late-year cut, creating trading opportunities or risks.
• Consider the implications for currency and bond markets, as a more hawkish BoE is typically supportive for the British pound (GBP) and suggests UK Gilt yields may remain elevated, warranting a review of portfolio duration and currency exposures.