Interest rates cut... but don't expect more straight away

It was a narrow vote in favour, as the dynamic I pointed to in June materialised.

A group of three committee members, led by Bank of England governor Andrew Bailey, switched their vote from hold to cut, giving a 5-4 majority in favour, versus 7-2 against in June. One of the members who voted to hold, Jonathan Haskel, will also be replaced by the next meeting.

The key split on the rate-setting committee is between those who think that with inflation at target it is appropriate to slightly reduce the squeeze on the economy, and others who still fear there will be enduring inflationary scars from the recent energy and food price shocks.

The clear message today was not to expect a series of consecutive cuts from hereon.

While there may be scope for a further reduction this year below 5%, perhaps in November, the governor wants to avoid cutting “too quickly or by too much”.

Inflation is expected to creep back up from the target of 2% over the next few months. Service inflation remains high, as do wage settlements, although both are beginning to calm.

The Bank was briefed early on most of the chancellor’s spending announcements, including the above-inflation public sector pay settlements. So far they seem relaxed, with insiders suggesting that it is private sector wages that set the benchmark for public sector ones, not the other way around.

The inflationary dragon is on the retreat, but is not yet totally vanquished. One cut has been delivered, and they will slowly tiptoe their way to some more cuts over the course of the next year.

“Enjoy your summer, but don’t go wild” appears to be the message to Britain’s consumers.