In our view, the Bank of England's choice to stick with their existing guidance, despite a slower economy, some positive inflation surprises and pivot talk across the Atlantic, made it even more apparent that there's a gap between what the market expects and what the central bank is saying. However, this disconnect may not be problematic as long as real policy rates remain in positive territory. Our estimate of the forward-looking âreal policyâ rate now stands at 0.3%, down from 1.8% this summer but a way off from its deeply negative values of the 2010s
Once that initial cut is implemented, we think it will open the door for a series of rate reductions to be rolled out over time as normalisation efforts intensify to bring rates closer to the neutral level of around 1.5% to 2.5%. Therefore, we have pencilled in an additional 25 basis point cut by the December meeting
-Rabobank
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