BoE Set to Diverge from Fed as UK Economy Slows

The Bank of England is likely to diverge from the US Federal Reserve's monetary policy as inflation remains under control, according to ING Think. This stands in contrast to market expectations that the BoE will raise interest rates three times over the next 12 months.

US Fed Chair Kevin Warsh argued at Jackson Hole that US interest rates are no longer restrictive, but this argument is harder to make in Britain, where the jobs market and consumer services are still struggling. The private sector wage growth rate has hit a new low of 2.8%, and forward-looking surveys do not point to an imminent turnaround.

ING Think also notes that UK economic growth may slow down in the second half of the year due to seasonal adjustment challenges, concentration of growth in a few sectors, and weak construction performance. They calculate that 'energy intensive' inflation has actually fallen this year, even accounting for last year's water and road tax hikes.

Based on these factors, ING Think predicts that the BoE will cut rates at least once by April 2027.