Speculation is increasing over the timing of the Bank of England’s next interest rate move, with many analysts now suggesting that December is more likely than November. Markets had previously anticipated an earlier cut, but expectations are shifting as the Bank signals a more cautious approach.
Deutsche Bank has been among those revising their forecasts. In its latest outlook for the UK economy, the lender highlighted that it no longer expects a November rate cut. Instead, it predicts December will be the point at which the Bank of England acts, pointing to the importance of additional data and the timing of the autumn Budget.
Economists believe the Monetary Policy Committee (MPC) will want a fuller picture before making its decision. By December, policymakers will have had the chance to review four more sets of GDP figures, four further labour market updates, and four additional inflation reports. This broader set of data could give greater clarity on whether cutting rates is the right step.
The decision also comes against the backdrop of fiscal policy changes. The later-than-usual timing of the autumn Budget is seen as another reason for the delay. The government’s announcements on tax, spending, and economic support will all feed into the Bank’s assessment of the economic outlook.
At the same time, the retail sector is showing signs of resilience. Figures from the British Retail Consortium (BRC) showed that sales in August rose by 3.1% compared with a year earlier. This was an improvement on last year’s 1% growth and also above the 12-month average of 2%. Warm weather and the recent interest rate cut were both cited as helping to lift spending.
Some areas of retail performed particularly well. Technology products, including computers and mobile phones, saw strong demand as parents prepared children for the start of the new academic year. However, the picture was more mixed in clothing, where sales of school uniforms and footwear were weaker than anticipated. Many families opted to buy second-hand items, reflecting ongoing concerns over affordability.
Food sales were another area of growth. They rose by 4.7% year-on-year, compared with 3.9% in August last year and higher than the 12-month average of 3.3%. Yet this was largely the result of higher prices rather than higher volumes, as food inflation remains a major factor shaping household spending. Prices were reported to have increased by more than 4% during the month.
Non-food sales also improved, up 1.8% compared with a fall of 1.4% in August 2024. Home-related products continued to see steady sales growth, in part linked to an earlier increase in property transactions following changes to stamp duty earlier in the year.
Within this category, sales of household appliances, DIY products, and garden equipment were notably strong. Warmer weather encouraged spending on outdoor goods, while an appetite for home improvements also gave a boost to the sector.
Helen Dickinson, chief executive of the BRC, welcomed the improvement in retail activity, saying that August capped off what she described as a “solid summer of sales.” However, she also warned that the outlook for the final months of the year remains uncertain, particularly with the all-important Christmas season fast approaching.
One concern is the timing of the autumn Budget, which falls just before Black Friday. Retailers worry that speculation about potential tax rises could weigh on consumer sentiment and discourage households from spending during the so-called “golden quarter” of retail trade.
Food inflation is also a growing challenge. Sarah Bradbury, chief executive of the Institute of Grocery Distribution (IGD), said food prices rose by 4.9% in July, led by staples such as beef, chocolate, and coffee. She explained that this sharp rise is putting further pressure on shoppers, many of whom expect costs to climb even higher.
The squeeze on households is reflected in falling consumer confidence. According to IGD, shopper confidence has now declined for three consecutive months, with households becoming increasingly pessimistic about their financial position. The strain of rising energy bills and the possibility of higher taxes is adding to the unease, particularly as unemployment is also starting to edge higher.
Even with these pressures, there are some reasons for optimism. Interest rates have already been cut, which has started to filter through into lower mortgage costs for many households. While challenges remain, this could provide some welcome relief for families juggling the rising cost of living.
Taken together, the latest signals suggest the Bank of England is keeping its options open but leaning towards caution. By December, policymakers will have a much clearer view of the economy, while retailers and households alike will be hoping for stability as they navigate the crucial run-up to Christmas.
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