​​​The Bank of England's (BoE) upcoming meeting on 1 August presents a challenging decision for policymakers. With inflation at the 2% target but services inflation remaining stubbornly high, the Monetary Policy Committee (MPC) faces a delicate balancing act.

​Market expectations

Investors currently view an August interest rates cut as a 50:50 probability. The nine-member MPC appears divided, with two members already voting for cuts, while others remain resistant to lowering interest rates.

​The case for a rate cut

​Inflation progress

​Despite headline figures, core inflation measures show a more encouraging trend. ING analysts argue that excluding volatile items, "core services" inflation aligns with BoE forecasts at 5.1%.

​Labour market cooling

Vacancies are nearing pre-Covid-19 pandemic levels, and unemployment is rising in line with or slightly faster than BoE projections. This suggests diminishing wage pressures.

​Economic growth concerns

​While the UK economy has shown stronger-than-expected growth, there are concerns about stagnation in the private sector. Some economists argue for a rate cut to boost economic activity.

​The case for holding rates

​Services inflation persistence

​Services inflation stood at 5.7% in June, well above the BoE's 5.1% forecast. This has been a key concern for some MPC members.

​Economic strength

Recent data shows a strong bounce back from last year's mild recession. This could potentially lead to renewed inflationary pressures.

​Global context

​While some central banks have begun cutting rates, the BoE may prefer to wait for more conclusive evidence before following suit.

​Potential outcomes

​A close vote

​If a rate cut occurs, it's likely to be on a narrow 5-4 vote, reflecting the finely balanced nature of the decision.

​Forward guidance

Even if rates remain unchanged, the BoE is expected to update its forward guidance to indicate the possibility of gradual future rate cuts.

​Market implications

​A rate cut could weaken the British pound, which has strengthened recently on expectations of higher rates for longer. However, the impact may be limited if the decision is already partially priced in.

​Policy move on a knife edge

​The August BoE meeting remains a close call. While there are arguments for both cutting and holding rates, the decision will likely hinge on how the MPC weighs recent economic data and their confidence in the inflation outlook.

​Regardless of the outcome, the meeting will provide crucial insights into the BoE's thinking on the path of monetary policy for the remainder of 2024 and beyond.