It is unlikely that a surprise Bank of England rate cut will be triggered by an aggressive move from the Fed.

• The expectation for the Bank of England to hold its rate cut on Thursday remains broad, despite market pricing for it increasing slightly this week.
• If the Federal Reserve cuts interest rates by 50 basis points on Wednesday, it could signal other central banks to follow suit with more aggressive cuts in the coming year and 2022.
• One economist predicted that although the Fed might arrive late to the party, it would establish the mood for the future.

Despite the possibility of a "jumbo" rate cut by the Federal Reserve, economists predict that the Bank of England will not change its monetary policy this week.

The Fed is likely to cut interest rates by 50 basis points rather than 25 on Wednesday, according to market predictions. This would mark the first rate cut in the current cycle.

The money market pricing for a BOE cut at Thursday's September meeting decreased from 35% on Tuesday to 26% on Wednesday morning, although it was still slightly higher than the previous week. This move occurred after the U.K. inflation rate for August was reported at 2.2%, which was consistent with July and in line with expectations, thereby supporting the need for more caution at Threadneedle Street.

Despite Britain's headline rate remaining close to the central bank's 2% target for five months, inflation in the services sector, which makes up 81% of the U.K. economy, has persistently increased, reaching 5.6% in August from 5.2% in July.

The decline in the headline figure can be attributed to reduced energy prices, as well as a slower pace of decline in core inflation, which excludes energy, food, alcohol, and tobacco.

According to Sanjay Raja, the chief economist at Deutsche Bank, a more "forceful" rate cut from the Fed may not significantly influence the BOE's decision this week, as the Monetary Policy Committee typically finalizes its decision before the Thursday announcement, which is scheduled for 7 p.m. London time (2 p.m. ET).

Raja stated that the impact of the decision could be seen in the MPC's risk management considerations, such as discussing two-sided inflation/growth risks to the economy and possibly encouraging some MPC members to advocate for a more rapid easing of restrictive policy, with the Fed's approval.

According to George Lazarias, the chief economist at Forvis Mazars, in developed economies, "services inflation is increasing and they are relying on an external factor to lower the headline rate."

"Central banks are benefiting from the decline in headline inflation, which is occurring because China is losing economic momentum at a faster rate than they are willing to acknowledge, resulting in an unintentional deflation of the global economy," he stated.

Lazarias stated that the externality implies that it would be premature to cut rates aggressively in both the U.K. and the U.S. As a result, he believes that the Fed will not cut by 50 basis points on Wednesday, and the BOE will not follow up with a Thursday cut this week, even if it aims to stimulate weak economic growth.

If central banks hike rates next year, it could harm their credibility and set inflation expectations, according to Lazarias. He believes that the expectation for a 50 basis point cut was based on bond market positioning rather than the views of a majority of strategists.

He stated that although the Fed might be tardy in reducing rates, it would establish the tempo for future actions.

The BOE initiated monetary easing by reducing the interest rate by 25 basis points in August, but the MPC left market participants uncertain about their decision until the last minute.

The reduction was approved by a narrow margin of five to four among the voting members, with those who were hesitant raising concerns about the labor market and services.

According to Consultancy Capital Economics, the consumer price index on Wednesday indicated a rate hold in September, with a 25 basis point cut expected at the next meeting in November. While downward pressure from food and fuel prices was offset by rises in household equipment, recreation, culture, and airfares.