The Bank of England (BoE) is expected to maintain interest rates at 5.0% when it makes its most recent monetary policy announcement on Thursday. This prediction is generally shared by analysts from a number of brokerages, including UBS, HSBC, Investec, and Bank of America.

The brokerages stress that this choice will have wider effects on future monetary policy and financial circumstances, even while there is agreement on a pause in rate reductions.

The BoE changed course at the August meeting by lowering the base rate for the first time this monetary policy cycle, by 25 basis points to 5%.

The Monetary Policy Committee voted 5–4 in favour of the cut, however, there was reluctance behind this decision. Several members of the committee opposed the cut.

Governor Andrew Bailey had indicated that more rate reduction would not happen soon, thus the MPC should take its time.

This dynamic, according to Investec analysts, suggests that the Bank will likely keep rates unchanged at the next meeting, with the majority of MPC members holding off on making another rate reduction until they have more information.

The hawkish Jonathan Haskel is being replaced on the MPC by Alan Taylor, whose policy views are yet unclear. This move creates more uncertainty.

A rate decrease is not completely out of the question, even though a hold is the most likely result. The economic data has weakened since the August decision, with GDP growth halting in June and July and inflation dropping more quickly than anticipated.

According to HSBC, July's inflation was 2.2%, less than the Bank of England's prediction of 2.4%. Additionally, services inflation—a major worry for policymakers—was also lower than anticipated.

Analysts have seen a slowdown in wage growth, with private-sector pay growth peaking at 8.1% a year ago and dropping to 4.9% in July.

As both Investec and HSBC have noted, the weakening of these important economic indicators may persuade some MPC members to make another decrease.

UBS, however, is doubtful that there will be a decrease this time around, pointing out that some committee members would still see inflation risks—especially those brought on by growing energy costs—as causes for concern.

While a dovish movement is visible, the UBS team believes that it is unlikely to result in any immediate adjustments to policy. However, if the economy continues to weaken, it may pave the way for more cuts next year.

Although rate cuts by the BoE are anticipated to halt in September, economists generally believe that more reductions may take place the following year, especially if inflation stays low.

(Sources: investing.com, reuters.com)