United Kingdom: BoE holds but risks later cuts – Societe Generale
Societe Generale’s UK team notes weakening housing demand as mortgage approvals fall to late-2023 lows, while business lending remains firm and wage expectations show limited second-round effects.
The UK's Bank of England (BoE) maintained its stance on interest rates but warned of potential future cuts, according to Societe Generale's UK team. This assessment is based on weakening housing demand due to declining mortgage approvals, which hit their lowest level since late 2023. Despite this, lending to businesses remains strong, indicating that recent increases in business investment may continue into the second half of 2026.
The Monetary Policy Committee (MPC) is expected to adopt a wait-and-see approach at a Treasury Committee hearing, although they may comment on the impact of recent energy price hikes on their views. Central banks face two choices to combat the rising headline inflation caused by energy price increases: either implement a 25 basis point rate hike or maintain higher rates for an extended period. This could lead to a delay in the first rate cut, now projected for the first quarter of 2027.
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