Period covered: August 24Published: August 02, 2024Read time: 1min

Economic Monitor

Economic Monitor: Bank of England cuts rates

The Bank of England cut interest rates for the first time since 2020, reducing the base rate to 5%. Economic growth in 2024 has thus far been stronger than the weaker outlook implied in the central bank’s previous forecasts. Growth momentum has continued into the third quarter of this year, and stronger earnings growth has translated into higher confidence as revealed through our Customer Sentiment Monitor for July.

The cut in interest rate reflects growing confidence that the persistence of inflationary pressures is slowly fading away. Despite this, the Consumer Price Index (CPI) is expected to rise slightly over the coming quarters, as the housing and energy component pushes up on the headline rate, when Ofgem increases its price cap in October. Goods deflation will weigh on the figure, however uncertainty surrounding elevated services inflation remains a risk in sustaining inflationary pressures for longer than expected.

Movements in commodity prices remain volatile although encouragingly prices generally eased off last month, following considerable upward momentum over Q2. Oil prices settled at $86 but natural gas prices trended back up. Given the immense 406% increase in shipping rates, the risk of business cost burdens increasing remains present, though a reduction in debt servicing costs will offer some reprieve to businesses.