Stock market today: S&P 500 hits record close as soft jobs data lift rate-cut bets
Investing.com -- The Bank of England is expected to cut interest rates by 25 basis points in November, according to ING, despite potential headwinds from inflation data.
Headline inflation is projected to reach 4% in September, with food inflation rising above 5%. The Bank of England has expressed concern that rising food prices, which are highly visible to consumers, could impact inflation expectations and potentially feed into wage growth.
Services inflation, however, is likely to undershoot the Bank’s forecasts of 5%. Rental growth, a key component of services inflation, is slowing rapidly due to a lower cap on social housing rental growth and better balance in the private rental market.
The labor market presents mixed signals. Employment has fallen in eight of the last nine months according to payroll numbers, though the Bank appears to be placing more faith in surveys, which show slight improvement in hiring indicators.
Wage growth is expected to slow to around 3.5% by year-end from the current 5%.
The upcoming Autumn Budget could also influence the Bank’s decision. Unlike last year’s expansionary budget, this year’s fiscal plan may be more restrictive.
The Treasury faces at least a £20 billion shortfall compared to March projections, potentially necessitating tax increases despite government promises not to raise income tax, employee National Insurance, or VAT.
For currency markets, if the Bank of England cuts rates in November as ING predicts, it would likely put downward pressure on sterling. However, ING forecasts GBP/USD to trade in a range of 1.33-1.38 by year-end, with late October to early November being the most vulnerable period for the pound.
ING projects a terminal Bank of England rate of 3.25%, with one more cut expected this year and two in 2026.