What elements will be taken into account at the BOE meeting later this week?

The decision will likely be taken with some balance, with expectations being that the vote on the bank rate will be 6-3 or 5-4 in favour of a rate cut. But what are traders currently expecting for this decision? The OIS market shows that there is a probability of around 61% priced in, with around 55bps of rate cuts for the year.

After the August decision, the BOE still has three meetings to hold by the end of 2024, in September, November and December. So there is still time to factor in the two supposed rate cuts that traders are currently pricing in.

Taking this into consideration, it may not matter much whether the BoE cuts rates this week or in September. Especially if it sends a more dovish signal at Thursday’s meeting. And even more so if the votes look close and the rhetoric leans toward a rate cut at the next meeting.

Of course, the knee-jerk reaction is to see the pound jump if the decision is to keep the bank rate unchanged this week. But that reaction is likely to fade quickly too, unless the BOE sends a message that it is still very uncomfortable with price pressures at present.

Suffice it to note that the previous decision in June saw the central bank declare that the decision was already “finely balanced”, even though the vote was 7-2 in favour of keeping the bank rate unchanged. Furthermore, no easing was made, with the statement being summed up as:

• Need to be sure inflation will stay low before cutting rates
• Monetary policy will need to remain tight long enough to bring inflation back to target
• The BOE remains ready to adjust its monetary policy in line with economic data to bring inflation back to the 2% target in a sustainable manner
• We will continue to closely monitor indications of persistent inflationary pressures and the resilience of the broader economy.

So any change here will help offset the two rate cuts scheduled for the coming months, even if there is no rate cut in August. In other words, it is the details that will be the focus of this week’s decision.