There has been much rumination on when the first cut in benchmark UK interest rates this cycle will come and, with opinions on the timing divided, the only sure bet is we will be hearing much more of this in coming days.

The Bank of England’s nine-strong Monetary Policy Committee will announce its next decision on UK base rates on August 1.

A poll of economists published this week by Reuters made for interesting reading in lots of ways. One point which was striking was that its findings were markedly different to the assessment of financial markets in terms of next week’s rates call.

More than four-fifths of economists, 49 out of 60, predicted the Bank of England would announce a quarter-point cut in base rates to 5% next Thursday.

Base rates had been hiked to 5.25% by last August through a long series of rises, from a record low of 0.1% in December 2021.

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Some economists had expected the first cut to have come by now, with May and June having been flagged previously as possibilities for the first reduction. And some have hammered home their view that the MPC has been much too hawkish on rates.

The May and June MPC meetings have of course since passed without such a move being forthcoming.

And, while the latest poll by Reuters still shows a strong majority expecting a cut next week, economists are overall not nearly as certain as they were in a similar survey last month, in which 97% forecast a reduction on August 1.

Furthermore, as Reuters noted on Wednesday, financial markets are pricing in only about a 45% chance of an August 1 cut in base rates.

Allan Monks, at US investment bank JP Morgan, said: “We look for a 25 basis point rate cut at next week’s meeting, although the call appears much closer than it did several weeks back. The case for lower rates is far from clear.”

He added: “If rates are lowered in August, it looks likely to happen on a close 5-4 vote.”

There has been plenty to mull over in recent days, ahead of next week’s MPC meeting.

Inflation figures last week were viewed as reducing to some extent the chances of a rate cut as early as next week.

Annual UK consumer prices index inflation, which peaked at a 41-year high of 11.1% in October 2022, came in at 2% in June, unchanged from the rate in May. Economists polled by Reuters had expected a decline to 1.9%.

Meanwhile, the latest flash purchasing managers’ index (PMI) from the Chartered Institute of Procurement & Supply and S&P Global points to an easing of inflationary pressures in the private sector this month, alongside a strengthening of expansion.

The criticism of the MPC by those senior economists who claim the committee has been too hawkish on rates, and has thus dampened growth, has been very easy to understand. And we should not underestimate the costs, in the form of unnecessary unemployment and a hit to growth, from overdoing the interest-rate medicine.

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However, we are where we are and MPC members’ views are where they are.

And, while the majority of economists forecasting a cut in rates next week is large, there is much uncertainty and large differences of opinion around this particular decision on rates.

In the meantime, there has been plenty in the mortgage market to pick over.

Moneyfactscompare.co.uk revealed this week that “the lowest five-year fixed mortgage rate at 60% loan-to-value has dropped below 4% for the first time since April 2024”.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Fixed mortgage rates are on the downward trend, which will be a relief to borrowers looking to refinance. There is still much more room for improvement, but it has taken a few months for the lowest fixed mortgage rates to drop below the 4% mark. However, as it stands five-year fixed mortgages are lower than a two-year equivalent, so any borrowers unsure on which to choose would be wise to seek advice to go through their options.”

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The flash July PMI survey from CIPS and S&P Global shows growth of the combined output of the UK manufacturing and services sectors accelerated between June and July. The flash UK PMI composite output index has risen to 52.7 this month on a seasonally adjusted basis, moving further above the level of 50 deemed to separate expansion from contraction. The final composite output index reading for June was 52.3.

The composite output prices index has fallen to 54.8 this month, from a final June reading of 55.7.

And in the services sector, where inflationary pressures appear to have been of particular concern to the MPC, the latest survey from CIPS and S&P Global points to an easing of the rate of increase of both prices charged and input prices.

Thomas Pugh, economist at RSM UK, said: “The small rise in the flash S&P/CIPS composite PMI in July to 52.7 suggests that the economic recovery evident in the first half of the year has continued into Q3. In more good news, falls in both the input and output price balances will give the MPC more confidence that the stronger economy is not leading to a resurgence in price pressures, and it can begin to cut interest rates as soon as next week.”

Noting the input and output prices indices for services “both fell to their lowest levels since early 2021”, he added: “This suggests that the recent stickiness of services inflation will start to dissipate soon. Admittedly, there was an uptick in the price balances of the manufacturing PMI but, given goods inflation is now negative, the MPC is unlikely to be too concerned by this.”

However, Peter Arnold, UK chief economist at accountancy firm EY, highlighted the EY ITEM Club think tank’s continuing view that the first cut in UK base rates this cycle will not come next week, but rather in September.

He said in the wake of the latest CIPS survey published on Wednesday: “On the inflation front, respondents reported that the slowdown in the flash survey's costs and prices balances resumed in July, following a slight uptick in price pressures last month. Input cost inflation cooled amid softer wage growth. Meanwhile, prices charged inflation was at its lowest level in over three years.

“But [the] data likely contains limited implications for monetary policy. Markets reacted to last week's official inflation data by lowering the probability of a 25 bps (basis points) cut at next week's MPC meeting and the committee has not pushed back against that. Consequently, the EY ITEM Club continues to think the first rate cut will not come until September.”

In terms of what transpires at next week’s MPC meeting, which will be very closely watched by homeowners with mortgages, the only thing that seems certain is that we will know soon enough.