Berenberg Says Another Bank of England Rate Cut Is in The Pipeline

10:20 AM EST, 02/05/2026 (MT Newswires) -- Thursday's wafer-thin majority on the Bank of England's Monetary Policy Committee (MPC) in favor of holding Bank Rate at 3.75% instead of lowering it by 25bp indicates that it won't be long before the BoE lowers interest rates again, said Berenberg.

The 5-4 vote was much closer than the consensus of 7-2, noted the bank. The surprise was due to the MPC putting less weight on the risk of inflation remaining above target and taking no signal from the strong Purchasing Managers Index (PMI) survey in January.

The downside risk to inflation from weak employment remains unchanged, in the MPC's opinion. With the four dissenters convinced that interest rates should be lower and Governor Andrew Bailey and Catherine Mann in the hold camp but wavering, the next cut is likely to hinge on when one or both of them switch their vote, stated Berenberg.

The bank predicts a larger 75bps reduction in the Bank rate this year. Indications of reasonable economic momentum at the start of the year mean that the next meeting, on March 30, may be too soon for the next cut.

However, it will be difficult for spending and activity to maintain momentum amid fiscal consolidation and a deceleration in household income growth. Meanwhile, growing competition between a rising pool of job seekers battling for few available roles will likely cause wage inflation to slow more sharply than the forward-looking surveys predict.

As a result, inflation is likely to remain close to 2% from Q2 onwards. This will allow the BoE to shift its focus to stabilizing employment with three more 25bps interest rate cuts, according to Berenberg.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.