08:53 AM EDT, 08/01/2024 (MT Newswires) -- The Bank of England (BoE) cut the Bank Rate Thursday by 25 basis points to 5.00%, noted Commerzbank.

However, the decision was very close with a five-four vote, wrote the bank in a note to clients. Four members of the Monetary Policy Committee (MPC) voted to leave rates unchanged.

The BoE said that it is "now appropriate to reduce slightly the degree of policy restrictiveness." This is because there has been some progress in reducing the risk of persistently high inflation, stated Commerzbank.

In May and June, the inflation rate fell to 2%, which is in line with the BoE's target. For the second half of the year, however, the BoE expects the inflation rate to rise again to 2.75 %. This is mainly due to the fact that last year's fall in energy prices will be excluded from the year-on-year comparison. The persistence of domestic inflationary pressure would then become more apparent, added the bank.

Meanwhile, the real economy has performed better than the BoE had expected in May. The BoE discussed the risks to the growth outlook and estimates that these are pointing upwards for domestic demand overall, even if growth in the first half of the year was probably somewhat overstated.

Against this backdrop, monetary policy "will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further."

As a consequence, a rapid succession of interest rate cuts isn't to be expected. Commerzbank continues to assume that the BoE will cut interest rates by 25 basis points every three months, next in November and then in February and May 2025.