Outrageous Predictions
Executive Summary: Outrageous Predictions 2026
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Bank of England quick take: hawkish vote split, dovish messaging
Neil Wilson
Investor Content Strategist
The Bank of England voted 5-4 to cut rates 25bps to 3.75%, and said inflation is now expected to fall back towards target more quickly in the near term.
The vote split - 4 stubborn hawks preferring to leave rates on hold - was quite hawkish and we saw sterling rally on the news and front end gilt yields shot up with the 2yr moving about 7bps higher on the announcement. The FTSE 100 trimmed about 30pts to back off the 9,800 level to turn negative for the session having traded up about a quarter of a percent before.
The hawks' view seems to be that highish forward-looking wage growth indicators mean inflation could be stickier than the doves assume. But as governor Andrew Bailey points out this is hard to reconcile with downward momentum in forward inflation indicators and rising unemployment. I think the hawks have got this wrong.
And the headline messaging was pretty dovish IMHO. The Bank says inflation is "now expected to fall back towards target more quickly in the near term" and that the "risk from greater inflation persistence has become somewhat less pronounced since the previous meeting, while the risk to medium-term inflation from weaker demand remains". CPI is coming back to target quickly and the UK won't be an outlier on inflation - this will allow more cuts next year.
Bailey is leaning more dovish and swung it this time - it won't take much as inflation eases and the labour market weakens in Q1 to see further cuts next year. Stick to the view that they cut again in Feb and Apr and then once more to 3%.
Forward guidance remains cautious: "Bank Rate is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call."
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