BoE - Key Takeaways

- Cuts Bank Rate 25bp to 5%, starting easing cycle. Vote 5-4 (Greene, Haskel, Mann and Pill) in finely balance decision

- Do not expect a rapid rate cutting campaign. Policy remains restrictive and will do for sufficiently long (to squeeze persistent inflation pressure)

- Plenty of caution given continuing concerns surrounding inflation persistence (won't cut too quickly or by too much)

- Domestic inflationary pressures remain elevated. Better economic growth an upside inflation risk.

- Energy inflation weight to ease over H2, Headline CPI expected to rise to 2.75% in H2

- Services CPI ex-indexed/volatile/rents/foreign holidays could be turning. Indexed & regulated services have been an upside risk. History suggests this will dissipate relatively quickly. Below graphic from MPR

- Inflation perceptions and expectations moving in the right direction which points to normalising wage dynamics (i.e. lower pay growth)

- Placing inflation context into three part to framework:

- Are we seeing a self-correcting path of inflation persistence (benign)?

- Do we need this plus output gap? Have the shocks induced structural changes?

- Structural changes (e.g. higher equilibrium unemployment rate) risk more persistent inflationary pressures

- Mean path for interest rates which takes into account upside risks closer to 2% than modal. Latter 1.7% in Q2 2026 and 1.5% in Q2 2027

- Upside inflation skew now due to domestic risk, whereas previous upside skew down to Middle-East events

- Minimum wage hike having small impact on pay growth

- Data evolving in line with expectations

- Looking to move to demand-led level of reserves (next QT decision to made at September MPC). Confident QT can continue to operate in the background for next year

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