The Bank of England may have started cutting rates ahead of the Federal Reserve, but you wouldn’t know it listening to recent comments from the UK’s central bank. The tone of the August meeting and subsequent speeches have made it abundantly clear that officials don’t want markets running away with the idea that this is going to be a rapid easing cycle.
Markets have taken notice. Not only are investors pricing fewer cuts before the end of this year, but they expect rate cuts to land at a higher level in the UK than the US too. That wasn’t the case before the summer.
Some of that caution can also be explained by services inflation. At 5.2%, it’s still above that of the US and eurozone, much like wage growth. Admittedly, that is a fair way below the Bank’s most recent forecast and July’s number was below consensus too. But just like the upside surprises that had come before it, this is mainly down to volatility in components the BoE isn’t so bothered about. Hotel prices are one such example.
The labour market data, though of dubious quality right now, isn’t screaming a need to ramp up the pace just yet. Vacancies are virtually back to pre-Covid levels, but officials are still wary that wage growth has consistently outpaced previous forecasts.