By Anant Chandak and Shaloo Shrivastava
BENGALURU (Reuters) -The Bank of England will cut interest rates by a quarter-point once more this year and then again in early 2026 as a resilient economy generates persistent inflation, according to most economists in a Reuters poll who have largely not changed their outlook in the past month.
Earlier this month the central bank cut Bank Rate by 25 basis points to 4.00% after a rare second round of voting, in a 5-4 split in the Monetary Policy Committee. Governor Andrew Bailey said easing should not happen “too quickly or by too much.”
An unexpected surge in inflation to 3.6% in June prompted the BoE to lift its forecast for it to peak at 4.0% this quarter. Data due on Wednesday are likely to show inflation, which the BoE targets at 2.0%, rose further in July to 3.7%.
But economists in the poll still expect inflation to peak around current levels, suggesting most have not made changes to their forecasts during August, which tends to be a quiet month with many away on summer holidays.
Fifty of 62 economists polled August 13-19 said the BoE will cut Bank Rate by 25 basis points once more this year, most likely at the November meeting which coincides with the bank’s own forecasting round. Nine expected the central bank to remain on hold.
Interest rate futures contracts are pricing in the next rate cut in early 2026.
“Right now the Bank of England is really on a knife-edge in terms of whether it wants to cut interest rates further. We think the disinflationary momentum, particularly in the wage data, will be just about enough to tip the MPC into cutting rates in November. I wouldn’t be surprised to see continued split votes – two-way votes, three-way votes,” said Chris Hare, senior economist at HSBC.
“The risk is we do ultimately get 4% inflation, coupled with the risk wage growth doesn’t ease back in the way we expect. If we see indicators of inflation expectations being even more uncomfortably elevated than they are… it would increase the risks of the majority of the MPC opting to pause for the time being.”
Official data showed overall average weekly earnings, excluding bonuses, grew 5% in the three months to June. A rate of 3% is seen as consistent with the BoE’s 2% inflation target.
Britain’s economy has also defied predictions of a slowdown.
A surprise 0.3% expansion last quarter put Britain ahead of its G7 peers for the first half of the year. Forecasts suggest steady growth of 1.1% this year and 1.2% in 2026 – a pace broadly similar to last year.
“What we’re learning about the economy is that it has an underlying degree of resilience that people had not anticipated, and ultimately that feeds into our rates call as well,” said Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, who expects the BoE to stay on hold until the end of next year.
While a majority of 59 economists predicted another quarter-point cut in early 2026, there was no consensus on the rate path throughout next year, with a split on how many cuts would be delivered.
“We think the neutral rate is higher,” Jordan-Doak said, referring to the rate that neither stimulates nor restricts the economy. “This means only a couple of rate cuts even in a worst-case scenario.”
(Other stories from the Reuters global economic poll)
(Reporting by Anant Chandak and Shaloo Shrivastava; Polling by Mumal Rathore, Debrah Gomes and Renusri.K; Editing by Ross Finley and Hugh Lawson)
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