Barclays expects the Bank of England to cut interest rates once more this year, followed by another reduction early in 2026.
Silvia Ardagna, the bank’s chief European economist, forecast a quarter-point cut in November, with a further move in February. She noted that while headline inflation came in stronger than expected at 3.8%, “progress on services disinflation continued.”
Services inflation rose from 4.7% to 5%, but Barclays highlighted that core measures excluding indexed and volatile components, rents and foreign holidays eased from 4.2% to 3.9%.
“This inflation print increases the risk that the Bank of England will pause for longer and reach neutral later than we currently forecast,” Ms Ardagna said. “That said, given the progress in underlying services inflation and on wage growth, we think it is too soon to rule out a November cut.”
Bank of England rate call ‘on a knife edge’, warns ex-MPC member
The Bank of England’s next interest rate decision will “remain on a knife edge” after the latest rise in inflation, former Monetary Policy Committee member Jonathan Haskel has warned.
Haskel, who served on the MPC from 2018 to 2024, said the latest figures left “slightly less prospect of more cuts” in the months ahead as policymakers assess the true level of underlying inflation.
“One surprise is that food and non-alcoholic beverages have gone up by an unexpectedly large amount,” he told BBC Radio 4. He added that while some policymakers may see this as temporary, others view it as significant for wage negotiations, potentially fuelling underlying pay and price pressures.
“The committee is going to remain on a knife-edge given those two conflicting forces,” he said.
