Deutsche Bank Reacts to Bank of England's Cautious Rate Cut with 4.75% Response

The Bank of England (BoE) has announced a second reduction in the current easing cycle, lowering the Bank Rate to 4.75%. This move is viewed as a cautious approach to the interest rate pathway, especially considering recent fiscal incentives.

According to the Monetary Policy Committee (MPC), the policy measures in the Autumn Budget are expected to increase GDP by 0.75% and contribute an additional 0.5% to the Consumer Price Index (CPI) at its peak within a year.

The MPC indicated that there is now no slack left in the UK economy for the upcoming year, having revised growth and CPI forecasts upward in the short term. Furthermore, the MPC expressed a preference for a gradual easing, stating that it set a higher threshold for any potential interest rate cuts in December, contingent on economic developments aligning with expectations.

However, the MPC left a narrow possibility for a rate cut in December provided that there are significant adverse developments in domestic prices and wages that would suggest a faster return of inflation to the target rate. Upcoming reports on growth, inflation, and the labor market will be critical in assessing the validity of the BoE's forecasts and could influence the MPC's decision-making process leading up to the next meeting in December.