Recent growth figures have sparked discussions about a potential interest rate reduction in August to revitalise the flagging º£½ÇÊÓƵ economy.
The Office for National Statistics (ONS) disclosed on Friday that the º£½ÇÊÓƵ economy experienced a second successive month of shrinkage with a 0.1 per cent contraction in May, as reported by .
Sanjay Raja, Deutsche Bank's chief economist, has stated that an interest rate cut at the Monetary Policy Committee meeting on 7 August is "almost certain" and anticipates further cuts in the last quarter of the year.
Since reaching a post-financial crisis peak of 5.25 per cent, the Bank of England has been progressively lowering rates, although external influences have slowed the process.
In June, the MPC maintained rates to combat persistent inflationary pressures as geopolitical tensions between Israel and Iran threatened to drive up energy costs.
Nonetheless, financial experts are now predicting a forthcoming rate cut.
Rob Wood, Pantheon Macroeconomics' chief º£½ÇÊÓƵ economist, remarked: "Headline GDP disappointed, which will keep the market pricing a high probability of an MPC rate cut in August."
Wood noted that the upcoming consumer price index and labour market reports, scheduled for release next week, are "the only barriers" to a decrease in rates.
MPC split as rates fall
The decision to maintain rates in June was made despite three out of nine policymakers – Swati Dhingra, Alan Taylor, and deputy governor Dave Ramsden – advocating for a 25 basis point reduction, highlighting a divide within the MPC.
The previous cut in May, which brought rates down to 4.25 per cent, saw a division between hawks and doves, with Dhingra and Taylor advocating for a 50 basis points reduction, while chief economist Huw Pill and Catherine Mann chose to maintain the status quo.
The Bank has continued its "careful and gradual" approach to monetary policy amidst geopolitical tensions arising from President Donald Trump's tariff onslaught and conflict in the Middle East.
Ellie Henderson, an economist at Investec, commented: "We expect GDP to continue to expand, although we do not imagine the pace of growth will be breaking any records anytime soon."
Henderson further added: "Falling interest rates look set to support activity but a looser market is likely to constrain activity."
Investec has projected the Bank rate to "eventually settle" at three per cent in the latter half of 2026.
