BOE Split Clouds Guidance Ahead of Expected Rate Cut to 4%

The Bank of England is widely expected to lower its benchmark rate to 4.0% from 4.25% at Thursday’s policy meeting, despite headline inflation running at 3.6%—almost double the central bank’s 2% goal. Market pricing signals at least one additional reduction before the end of the year as growth slows and unemployment edges higher. Economists say deep divisions on the Monetary Policy Committee over the persistence of domestic price pressures and the appropriate pace of easing could limit the clarity of any forward guidance. Services inflation and wage growth remain elevated, and surveys show long-term inflation expectations near multi-year highs, bolstering the case for a more cautious stance. The anticipated cut comes as the BoE continues to shrink its gilt holdings by about £100 billion this year. Analysts will watch whether officials hint at slowing the quantitative-tightening programme to avoid pushing market rates higher just as they begin reducing the policy rate. Uncertainty over fiscal policy ahead of the government’s autumn budget and shifting expectations for U.S. and euro-area monetary easing are adding to the BoE’s communication challenge. Investors are focusing on Thursday’s vote split for clues about how quickly the bank could move beyond the initial cut.