For months, traders treated the first rate cut as a date already ringed on the calendar — a question of when, not whether. This week the central bank quietly took the pen away. Holding its benchmark steady for a third consecutive meeting, it said aloud what the curve had refused to price: the descent from the peak will be slower, later and bumpier than the consensus wanted, and nobody on the governing council is in a hurry to declare the war over. The mechanism here is worth stating plainly, because the headlines rarely do.
The headline number flatters; the details refuse to play along. Overall inflation has fallen a long way from its ugly peak, settling near 2.6 per cent on the latest reading. Strip out the volatile energy and food components, though, and the picture turns obstinate. Core inflation has barely moved in two quarters, and the gauge policymakers actually watch behind closed doors — services inflation, the price of everything from a haircut to an insurance premium to a restaurant table — is still running close to 4 per cent. That is not the shape of a problem that has been solved. It is the shape of one that has dug in and made itself at home.
The last mile is the hard mile
Central bankers have a phrase for the stretch they are crossing: the last mile. Hauling inflation from nine per cent to three was the comparatively easy part, done mostly by the unwinding of pandemic-era supply shocks and tumbling energy prices — disinflation the world got for free. Squeezing it from three back to the two-per-cent target is a different exercise, because what remains is home-grown, wage-driven and slow to shift. The free part is spent. What is left has to be earned, quarter by grudging quarter.
Wages are the engine keeping services prices warm, and this is the same story playing out across every advanced economy, not a local peculiarity. Negotiated pay is still climbing above 4.5 per cent a year, comfortably ahead of the productivity growth that would let firms absorb it without lifting prices. Workers who watched two years of inflation eat their pay packets are, reasonably, trying to win the ground back. The result is a labour market the council calls, carefully, "tight" — unemployment near record lows, vacancies still plentiful — and a feedback loop the bank is determined not to let set into expectations. Once households expect high inflation, they bargain for it, and it arrives.
"The first cut is a signal, not a technicality. Ease a month too soon and you may have to reverse it — and a central bank's credibility, once spent, is ruinously expensive to buy back."
An economist at a European asset manager — who asked not to be namedThat fear of the premature cut explains the bank's patience better than any forecast. Officials remember the institutions that loosened too soon in earlier cycles — the cautionary tales run from the 1970s to the last decade — and were forced into a humiliating reversal, and they would rather hold a fortnight too long than ease a fortnight too early. "There is no medal for being first," one rate-setter has said in public. The asymmetry is deliberate, and it is the whole of the strategy: wait too long and you pay a few months of needlessly restrictive policy; start too early and you buy a second wave of inflation and a shredded reputation. Given that trade, patience is not timidity. It is arithmetic.
What it means for borrowers and savers
For households and firms, the message is prolonged patience. Anyone banking on a materially cheaper remortgage or refinancing this summer should recalibrate. The futures market, which not long ago priced three cuts before year-end, has quietly trimmed its bet to one — and even that is no longer expected before autumn. Variable-rate borrowers carry the current burden a while longer; first-time buyers eyeing the slowly reopening mortgage window will find the door ajar rather than flung wide.
Savers, by contrast, get a reprieve. Deposit rates that finally turned attractive after a decade of famine will stay attractive into the autumn, and cash is no longer the embarrassment it was in a balanced portfolio. The corporate world feels the same gravity in reverse: firms that gorged on cheap debt in the easy years now face a refinancing wall at far higher rates, with no relief on the horizon. So the bank's patience is not free. It merely redistributes the cost — and for now the bill lands on the borrower, not the saver, which is a political fact as much as a monetary one. When the cut finally comes, read it as confirmation the war is won, not as the opening shot.