Internal divisions within the Bank of England intensify, Governor Bailey becomes the key swing voter on interest rate cuts.

This week, Andrew Bailey, Governor of the Bank of England, arrived in Washington and faced stricter scrutiny. Against the backdrop of a deeply divided Monetary Policy Committee, he is now clearly a key swing vote in the committee during times of severe disagreement. During the International Monetary Fund and World Bank meetings, Bailey appeared twice in public to show his stance, while some prominent economists have already warned that the market may be underestimating the possibility of further interest rate cuts this year. The Monetary Policy Committee, consisting of nine members, is currently deadlocked with four hawkish officials opposing further rate cuts and four dovish rate setters advocating for maintaining accommodative policies, with Bailey being seen as the key swing vote. This divergence stems from differences in judgment regarding whether the recent surge in inflation to nearly double the Bank of England's 2% target will continue to generate price pressures - lowering borrowing costs at this time may pose too much risk. Bailey's two deputies, Sarah Breedon and Dave Ramsden, have downplayed the inflation threat in recent weeks, emphasizing that underlying inflation remains at normal levels. On November 26, Chancellor of the Exchequer Rishi Sunak will announce the autumn budget three weeks after the end of the meeting, a timing seen as a key external factor guiding the committee's work. Bailey's recent remarks demonstrate a balanced strategy: he acknowledges the need to lower interest rates to control borrowing costs for millions of Britons, but emphasizes that "the specific timing and extent of rate cuts will depend on the path of decreasing inflation," and suggests acceptance of the current market pricing (low probability of rate cut by the end of the year). Currently, investors have virtually ruled out the possibility of an interest rate cut at the November meeting, with a probability of around 20% for a cut in December. However, economists from institutions such as Barclays, Nomura, and Daiwa Securities still believe there is room for action before the end of the year. Jack Meaning, Chief UK Economist at Barclays, pointed out that Bailey seems to be "caught between two camps" and warned of the risks of tightening financial conditions and upcoming GDP and labor market data that may not meet expectations. If these data align with the committee's expectations (such as inflation peaking in September and cooling before the end of the year), "Bailey may lean towards a more moderate position." James Rossiter, Global Head of Macro Strategy at Daiwa Securities, believes that the market severely underestimates the probability of a rate cut, pointing out that some members of the committee are satisfied with the rate of quarterly rate cuts, and the ultimate direction will be determined by unexpected data scenarios. The BOESPEAK index from Bloomberg Economics Research tracks interest rate sentiment in committee remarks, which shifted from moderate to hawkish in recent weeks but still suggests Bailey's recent remarks lean towards moderation. The complexity of the November meeting lies in the fact that inflation data for September, expected to show a 4% increase in prices, was just released two weeks ago, and the budget plan is on the horizon. During the November to December meetings, the committee will receive two rounds of inflation and employment data, while closely monitoring the budget content - previously, Sunak was blamed for raising inflation by raising wage taxes in April, and if new tax measures are implemented early, they could directly impact the Bank's GDP forecasts and inflation trends. George Buckley, Chief UK Economist at Nomura, stated that the current market pricing "is not high for a central bank that has a history of surprises," with the key factor being the pace of announcement of austerity measures in the budget - "if announced early, it will be included in the Bank's GDP forecasts and pull down inflation." While a pre-September meeting survey showed that most forecasters still expect a decline in borrowing costs in the fourth quarter, some economists have delayed their next rate cut forecast to 2026 due to concerns about rising food prices pushing up inflation expectations.