08:00 AM EDT, 08/01/2024 (MT Newswires) -- The Bank of England (BoE) Thursday cut rates for the first time this cycle, by a quarter point to 5.0%, noted ING.

However, reading the statement and the meeting minutes, the BoE appears incredibly reticent to let markets run away with the idea that this could be the start of a rapid cutting cycle, wrote the bank in a note.

The statement itself makes no reference to the possibility of future cuts and simply says that rates need to stay restrictive for "sufficiently long," a sentence it has included for quite some time now. The decision was "clearly controversial," with five Monetary Policy Committee (MPC) members narrowly outvoting the four that wanted to keep rates on hold for another month, stated ING. For those who did switch from a hold to a cut at this meeting, the minutes again reveal that the decision was "finely balanced."

None of that should come as a huge surprise, for three reasons, pointed out the bank. Firstly, unlike the European Central Bank (ECB) or the United States Federal Reserve, the BoE hasn't made a habit of making precommitments to future policy changes ahead of time.

Secondly, the recent stubbornness in services inflation offers a range of interpretations about the level of price pressure in the United Kingdom economy, noted ING. Services inflation at 5.7% is both well above target/historical averages, and crucially higher than what the BoE had been forecasting in May.

A lot of the recent upside surprise looks like noise, but investors will get two more reports before September's meeting and further overshoots would help cement a pause at that meeting.

Finally, the BoE's new inflation forecasts tell the bank that policymakers are pretty comfortable with what markets are pricing right now in terms of rate cuts. The mean inflation forecast in two years' time stands at precisely 2%, based on a swaps curve that included roughly three more cuts over the next year and two the year after at the time those projections were formed.

Having said all of this, ING thinks the BoE will ultimately cut rates faster than the MPC is currently prepared to admit. The bank suspects the data on services inflation and wage growth will improve as the year goes on, making the MPC more comfortable with proceeding with at least one more cut this year.

ING suspects that will most likely come in November and it believes that will most likely be followed by another in December. A September rate cut is entirely plausible though, if the services inflation data starts meaningfully surprising to the downside. ING thinks Bank Rate could reach the 3%-3.5% area by next summer.