Deutsche Bank has pushed back the likelihood of a final base rate cut in 2025 by a month into December.    

The German bank says that an interest rate reduction in the final three months of the year was “ultimately a coin-toss between November and December,” with it previously favouring rate-setters would opt for a November cut.

But the investment bank is now “changing our call,” says Deutsche Bank senior economist Sanja Raja in a note to clients, adding that “we now think a December rate cut looks more likely”.

The move comes after the Bank of England governor warned last week that there is “considerably more doubt” about when the central bank will be able to cut interest rates again.    

Andrew Bailey sounded his note of caution while giving evidence to parliament’s Treasury Select Committee. 

The governor said: “Although we’ve taken a further step, and although I think that the path will continue to be downwards, gradually over time, because policy is still restrictive … there is now considerably more doubt about exactly when and how quickly we can make those further steps. 

“That’s, that’s the message I wanted to get across. Now I think actually, judging by what’s happening to market pricing, I think that message has landed.” 

Last month, the Bank’s Monetary Policy Committee voted 5-to-4 to cut the interest rate by a quarter point to 4%, its lowest level since March 2023. It was also the third cut by rate-setters this year and the fifth since last August. 

MPs also heard from external rate-setter Megan Greene, who voted to hold interest rates last month for two reasons.  

She argued at the rate-setters meeting that the risk of higher inflation persistence has risen, while the risk of weaker economic demand has fallen. 

Inflation rose to 3.6% in the year to June, with the Bank expecting to hit 4% this month. 

Deutsche’s Raja says: “With four members already dissenting and pushing for a ‘skip’ in Bank rate cuts, the deciding vote for any further rate cuts will rest with governor Bailey. 

“At the recent Treasury Select Committee hearing, governor Bailey made no attempt to push back on the notion that the timing of further rate cuts was up for debate. 

“Put simply, with the August decision being ‘finely balanced’, the governor may be more inclined to wait until year-end before pulling the trigger on another rate cut, bridging some of the gap within the Monetary Policy Committee.” 

Raja adds that a late 26 November Budget may mean that rate-setters “may opt to wait for more clarity around the fiscal outlook before deciding on whether to cut Bank rate further. As well as giving them time to study further labour market and wage data. 

However, Deutsche Bank’s forecast of a December rate cut is an outlier in the money markets.  

Following Bailey’s comments, many traders no longer expect another rate cut this year, with the next cut only fully priced in by next April.