UBS: Bank of England expected to keep interest rates unchanged and shrink its balance sheet in a more gradual manner

UBS expects the Bank of England to vote 7-2 to keep the bank rate unchanged, with Dhingra and Ramsden in favor of a rate cut. "It is very likely that the Bank of England will stop actively selling gilts in the next financial year and reduce its balance sheet in a more gradual manner." UBS continues to expect the Bank of England to cut interest rates again in November and pause in December. However, UBS adjusted its expectations for 2025 and now expects a 150 basis point cut to 3.25% by the end of 2025, from 3.00% previously. UBS now expects the practice of quarterly rate cuts to be maintained until August 2025 before the start of a series of rate cuts (previously expected to start in May 2025 and reach 3.00% by December 2025). UBS noted that due to recent changes in energy prices, it now expects headline inflation to return to 2% only in October 2025, rather than in early 2025. (Jinshi)