The Bank of England will start cutting interest rates in August, according to all but two of 65 economists polled by Reuters, and most of them expect at least one more reduction this year despite persistently high pay and services inflation.

One of the first central banks to start raising rates following the worst of the COVID pandemic, the BoE lifted Bank Rate (GBBOEI=ECI) by 515 basis points between December 2021 and August 2023 to a 16-year high of 5.25 per cent to tackle soaring price pressures in the economy.

Overall inflation eased to 2.3 per cent in April, close to the central bank’s 2.0 per cent target, from a peak of 11.1 per cent in October 2022. A hot job market has started slowing and official statistics on Wednesday showed the economy stalled in April, partly due to exceptionally rainy weather.

However, wage and services inflation, both watched closely by the BoE, are still around 6 per cent.

Only two of 65 economists polled expected the BoE to wait until September to cut rates instead of August. But all 24 who participated in both the latest and last month’s poll and had previously forecast a cut on June 20 moved their call to August.

Financial markets are pricing only one BoE rate cut this year, in September.

“While we are seeing some tentative signs of cooling in the labour market, service sector inflation remains persistently high and it is likely the MPC would want to wait until the next set of forecasts and a few more data points before it embarks on its first rate cut,” said Yael Selfin, chief UK economist at KPMG.

One set of labour market data and two more inflation releases are due before the Monetary Policy Committee meets in August, when it next releases detailed quarterly forecasts.

Asked if any other MPC members would vote for a rate cut in June – as Dave Ramsden and Swati Dhingra did in May – about three-quarters or 22 of 30 economists, who responded said No. The rest said Yes.

The poll median forecast showed Bank Rate would be a half-point lower at year-end. It was forecast at 5.00 per cent at end-September and 4.75 per cent at end-year, compared with 4.75 per cent and 4.50 per cent, respectively, in last month’s poll.

Just over half of economists, 35 of 65, forecast two 25 basis point Bank Rate reductions to 4.75 per cent by end-2024. Over one-third, 24 of 65, predicted 75 basis points of cuts to 4.50 per cent, with three economists expecting Bank Rate even lower at 4.25 per cent. The remaining three expected only one cut this year to 5.00 per cent.

That prediction was similar to expectations for two quarter-point cuts this year by the US Federal Reserve, which will announce its latest policy decision later on Wednesday but is not expected to cut rates until September at the earliest.

The European Central Bank started its cutting cycle on June 6 but with expectations policymakers there are in no hurry to follow up with a second one.

UK inflation was predicted to average slightly above the BoE’s target of 2.0 per cent across all quarters until at least the end of 2025, according to the poll. Median forecasts showed inflation averaging 2.5 per cent this year and 2.2 per cent next.

The economy was forecast to grow 0.3 per cent in every quarter until end-2025, unchanged from last month’s poll.

Over 2024 the economy was forecast to expand 0.7 per cent, faster than last month’s 0.5 per cent prediction. Growth was predicted to accelerate to 1.2 per cent and 1.4 per cent in the following two years, respectively.