"Super Week for the Central Bank" Final Battle: Tonight, Will the UK Cut Interest Rates?

This week, after the Bank of Japan aggressively raised interest rates and the Federal Reserve kept rates unchanged, the Bank of England will become the next market focus.

Investors generally expect that against the backdrop of easing global inflation pressures, the Bank of England will announce a rate cut at 19:00 Beijing time on Thursday. Derivatives market data shows that traders believe there is about a 65% probability of a rate cut by the Bank of England on Thursday, significantly higher than the 40% in early July.

Some analysts point out that although inflation in the UK service sector remains high, rising unemployment and falling commodity prices may lead the Bank of England to focus more on long-term inflation and growth prospects. Ranjiv Mann, portfolio manager at Allianz Global Investors, stated that market expectations for a rate cut by the Bank of England have been rising, possibly due to disappointing economic data from the Eurozone, tilting the balance towards a rate cut by the Bank of England this Thursday.

On Tuesday this week, Eurozone GDP data for the second quarter was released, showing a 0.3% growth compared to the European Central Bank's forecast of 0.4%. Despite the relatively strong latest economic data from the UK, investors still believe that signs of slowing growth and inflation in the Eurozone and the US are prompting them to bet that the UK economy may also follow a similar path of economic slowdown in the future.

In particular, Huw Pill, Chief Economist of the Bank of England, stated in July that investors are not only focusing on inflation but are also paying more attention to broader economic indicators including wage growth. Data shows that in the first three months up to May, wage growth in the UK slowed down, with the unemployment rate rising to 4.4%, slightly higher than expected.

Sree Kochugovindan, economist at Abrdn, believes that changes in the labor market are sufficient to drive a rate cut by the Bank of England.

Guy Stear, Head of Strategy at Amundi Investment Institute, believes that the future growth prospects for the UK are weak, and even with a rate cut, he expects the UK's GDP quarterly growth rate to remain below 1.5% by 2025.

Since August last year, the Bank of England has kept interest rates at 5.25%, with calls for a rate cut persisting. The overall inflation rate in the UK has reached the 2% target for two consecutive months. Due to rising energy prices, inflation is expected to rise later on.

Some investors believe that this may pave the way for the Bank of England to cut rates opportunistically on Thursday and then maintain rates unchanged at the following meetings. Mark Dowding, Chief Investment Officer at RBC BlueBay Asset Management, believes that Thursday may be the best opportunity for the Bank of England to cut rates, and it may be the only chance. As by the next rate meeting, UK inflation rates may be higher, hence there is only a brief window for a rate cut