The small drop in the inflation rate – from 3.8 per cent to 3.6 per cent – announced on Wednesday morning is the latest indication that a fourth interest rate cut of the year is expected before the end of 2025.The Bank of England’s Monetary Policy Committee voted to hold rates at 4 per cent at the start of November, but there is one final vote to come in 2025 – on 18 December.While the BoE governor Andrew Bailey spoke of wanting to see more data before committing to further cuts, the confirmation that inflation has eased slightly is the latest, and biggest, indicator that a rates cut is required to get the economy moving once more.There is one more major event on the horizon before the vote: Rachel Reeves’ Budget. But expectations are for this to be similarly disinflationary, meaning a rates cut appears almost a certainty.Data showing a stagnant economyAfter two months at 3.8 per cent – September’s data was lower than the 4 per cent expected – we’ve now seen inflation drop back to the level last seen in June, confirming analysts’ expectations that inflation has peaked. One slight concern will be over food prices, which are rising again after a one-month drop. The Food and Drink Federation noted that “manufacturers are paying nearly 40 per cent more for ingredients and energy than they were in January 2020”, explaining the huge uptick in prices. But the wider inflationary picture points to a rates cut.It’s not just inflation that the BoE look to though, and elsewhere the signs also show that a kickstart is needed.The housing market has been far from firing on all cylinders, with many industry experts noting that buyers and sellers alike are holding off for more certainty around any tax implications, given the past few months has seen everything from reports over a Mansion Tax to the Conservatives claiming they would eliminate stamp duty altogether – a move backed by Kirstie Allsopp.More recently, economic data showed the UK’s GDP growth slowing to just 0.1 per cent across the past three months, with production output in particular dropping.Factor in job vacancies falling to the lowest level of the year and the rate of unemployment hitting 5 per cent for the first time since Covid and it’s clear that businesses are no longer investing to the levels required, just as much as people are not moving or spending as much as needed.Get a free fractional share worth up to £100.Capital at risk.Terms and conditions apply.Go to websiteADVERTISEMENTGet a free fractional share worth up to £100.Capital at risk.Terms and conditions apply.Go to websiteADVERTISEMENTBudget details are keyGiven the factors highlighted above, it would have been unsurprising had the BoE pre-empted some of that most recent data by cutting rates on 6 November. Indeed, they almost did – the vote was split 6-5, with governor Bailey casting the deciding vote to stick rather than twist.Perhaps the biggest reason behind that apparent caution was the Budget, and the lack of clarity over what to expect.That said, tax rises on individuals and more costs for businesses are generally disinflationary.“The upcoming Budget is likely to involve measures specifically designed to push down on inflation in things like energy prices, while the overall degree of fiscal consolidation is also likely to weigh on growth and inflation in the medium term,” explained Luke Bartholomew, an economist at Aberdeen.As noted though, it’s not totally clear what’s coming and any surprises could still have the opposite effect.( More
