The Bank of England may be the first to initiate a rate-cutting cycle, with the Federal Reserve expected to follow next month

According to Zhitong Finance APP, against the backdrop of sluggish global economic growth and persistent inflationary pressures, the Bank of England is expected to announce an interest rate cut this Thursday, becoming one of the major central banks to take a loose monetary policy stance in the current cycle. This may also signal that the Federal Reserve will follow suit in next month's monetary policy meeting.

Recent economic data has shown that U.S. service sector activity was weak in July, while the labor market performance was disappointing, raising market concerns about stagflation risks and further strengthening expectations for a rate cut by the Federal Reserve. The UK may serve as a "testing ground" for this policy path, as its economy is also mired in the "high inflation + low growth" quagmire.

According to Refinitiv data, traders believe there is a 96% probability that the Bank of England will cut rates at its August meeting. The market generally predicts that the Bank of England will lower the benchmark interest rate by 25 basis points to 4%. This would be the first policy adjustment by the bank since May of this year.

In contrast, expectations for a rate cut by the Federal Reserve in September are also heating up. According to the CME FedWatch tool, traders currently believe the probability of a rate cut in September has risen to 91%.

Economic data from the UK also supports the case for a rate cut. In May of this year, the UK economy unexpectedly contracted, marking negative growth for the second consecutive month, while the unemployment rate slightly rose to 4.7%. Typically, such data would be sufficient to prompt the central bank to loosen monetary policy.

However, the problem is that the current inflation level in the UK remains above the central bank's target of 2%. In June, the UK inflation rate rose to 3.6%, reaching a new high since January 2024. This undoubtedly puts the Bank of England in a "dilemma" when formulating policy, as it needs to stimulate economic growth while also preventing inflation from spiraling upward.

Despite the concerning macroeconomic situation, the UK stock market has performed remarkably well. The FTSE 100 index has risen 12% this year, repeatedly hitting new highs. The driving forces behind this include government plans to increase defense spending and a trade agreement reached between UK Prime Minister Starmer and U.S. President Trump, which sets the baseline tariff on U.S. goods to the UK at 10%, lower than previously expected by the market.

In comparison, U.S. stocks have also performed well. The S&P 500 index has risen 7% this year, indicating that investor optimism regarding the U.S. rate cut cycle is gradually taking shape