Interest rates: Will Bank of England cut its base rate again this week?

The will make its next decision onthis week - but will it announce another cut?

The Monetary Policy Committee (MPC) will meet on Thursday where it will decide whether to keep its base interest rate at 5% - or reduce it again. The MPC voted to cut its base rate by 0.25 percentage points in August, down from a 16-year high of 5.25% to its current level of 5%. It held the base rate of 5% at its last meeting in September.

Now, most forecasters say rates will be cut again this week, with economists polled by Reuters forecasting another 0.25 percentage point reduction in the benchmark rate, bringing it down to 4.75%. Data compiled by Refinitiv also predict a cut to rates this week, with 90% believing a cut will happen.

September’s inflation report moved the dial in favour of a November rate cut. The came in at 1.7% on an annual basis in September. This was the slowest rate of inflation in over three years, coming in below the Bank of England’s 2% target. More significantly, services inflation also slowed from 5.6% to 4.9% in September, coming in comfortably below the Bank of England’s 5.5% forecast.

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A cut this week still appears likely even as wins the White House race today. However, the likelihood of back-to-back cuts - with the final MPC meeting due in December - slipped as the market digested last week's Autumn . Refinitiv data found a sharp drop for a cut in December at 65.2%.

Trump's presidency is set to have an impact the UK's base rate going forward. One of the main reasons is due to his plan to to put high tariffs on imports. This inflationary pressure could well have an impact on interest rates in the UK, economists have said. Paul Dales of Capital Economics said: "A more inflationary global environment may mean the Bank of England cuts interest rates by less than otherwise."

Alongside this, last week's Budget threw some curve balls in as well. Last week Reeves said she would be raising taxes by £40billion, to help restore "stability" in public finances. This included an increase in National Insurance contributions for businesses, as well as a rise in Capital Gains Tax rates.

The Office for Budget Responsibility (OBR) said its in economic and fiscal outlook, released last week that the budget policies would push up the Consumer Price Index (CPI) inflation measure by around half a percentage point at their peak. This meant that CPI was projected to rise to 2.6% in 2025 but then "gradually fall back" to the target of 2%,

Compared to its March forecast, the OBR said inflation was expected to be 1.1% higher in 2025 and 0.6% higher in 2026, "driven mainly by greater-than-expected persistence in wage growth and the impact of the near-term fiscal loosening in this budget". This could see the Bank of England be a little more cautious with its cuts going forward.

Commenting after the Budget last week, Joe Nellis, economic adviser for professional services firm MHA, said: "Interest rates are likely to fall slower than previously expected as a result of this budget, although we still expect to see another cut before the end of this year. The scale of public sector expenditure, increases in the minimum wage, and the likelihood that national insurance charges will lead to higher costs of employment, will put some upward pressure on prices."

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