The Bank of England may be the first to start an interest rate cut cycle, with the Federal Reserve likely to follow suit next month.

Against the background of sluggish global economic growth and simultaneous inflation pressure, the Bank of England is expected to announce an interest rate cut this Thursday, becoming one of the major central banks to adopt a loose monetary policy in the current cycle. This may also indicate that the Federal Reserve will follow suit at its meeting next month. Recent economic data shows that the U.S. service sector activity weakened in July, while the job market performance was disappointing, prompting concerns about stagflation risk and further strengthening expectations for a rate cut by the Federal Reserve. The UK may become a "testing ground" for this policy path, with its economy also stuck in the "high inflation + low growth" quagmire. According to Reuters data, traders believe there is a 96% probability that the Bank of England will cut interest rates at its August meeting. The market generally predicts that the Bank of England will cut the base interest rate by 25 basis points to 0.4%, marking the bank's first policy adjustment since May this year. In contrast, expectations for a rate cut by the Federal Reserve in September are also rising in the U.S. market. According to the CME FedWatch tool, traders currently believe there is a 91% chance of a rate cut in September. Economic data from the UK also provides a basis for the rate cut. In May this year, the UK economy unexpectedly contracted for the second consecutive month, with the unemployment rate slightly rising to 4.7%. Typically, such data is enough to prompt the central bank to loosen monetary policy. However, the problem lies in the fact that the current inflation level in the UK remains above the central bank's 2% target. In June, the UK inflation rate rose to 3.6%, reaching a new high since January 2024. This undoubtedly poses a dilemma for the Bank of England in formulating policies, as it needs to stimulate economic growth on one hand and prevent inflation from spiraling up on the other. Despite the worrying macroeconomic situation, the UK stock market continues to perform well. The FTSE 100 index of the London Stock Exchange has risen by 12% this year and has repeatedly hit new highs. Driving forces behind this include government plans to increase defense spending, as well as a trade agreement reached between UK Prime Minister Starmar and U.S. President Trump, which sets the U.S. baseline tariff for UK goods at 10%, lower than market expectations. In comparison, the U.S. stock market has also performed well. The S&P 500 index has risen by 7% this year, indicating that investor optimism about the U.S. rate cut cycle is gradually growing.