The Bank of England (BoE) will announce its latest interest rate decision on August 1. There is no guarantee that a cut will eventually happen, but some UK stocks could react very positively if it does.

Inflation “on the ropes”

One reason we think a cut will come is because inflation has fallen so much. The last two readings (May and June) were 2% — in line with the BoE’s long-term target and a far cry from the 11.1% reached in October 2022.

Another (more speculative) reason to think that BoE Governor Andrew Bailey and company might finally act is that the general election is now behind them. Perhaps understandably, the bank wanted to avoid accusations of political bias during the campaign.

Now that we have that behind us, I imagine many business leaders will be pushing for there to be no further delays, especially as the UK’s growth forecasts are also improving.

What might work?

Predicting which companies might succeed in a lower interest rate environment is speculative. But we have the past to look back on.

Consumer discretionary stocks have done well. Lower interest rates make it more likely that shoppers will gradually start to indulge again. Utilities — and anything with significant maintenance costs — are also gaining as debt payments are lower. The same goes for growth stocks, which require a lot of financing to reach and exceed breakeven.

Another beneficiary should be the real estate sector. My investment in a construction company Kaki (LSE:PSN) means this is a part of the market I will be watching closely over the next month.

Why? Because lower interest rates are expected to lead to better mortgage availability for buyers, especially those looking to secure their first home. Overseas investors could also get excited and support shake off the cobwebs in the UK’s sluggish property market.

Not so speedy

It’s simple to see the problem in the above that I already mentioned, namely that the cut may get postponed (again).

Even if interest rates do fall, there’s an argument that at least some of the potential upside in sentiment has already been priced in. At the time of writing, Persimmon shares are up 9% year-to-date, yet trading updates are rather lukewarm. The stock is also trading at almost 19 times forecast earnings.

There is also a chance that inflation could rise again in the remainder of 2024. If that happens, the BoE may refrain from cutting further, or even raise rates again. At the very least, that could keep UK stock prices in check for a while.

Who cares?

Does any of this matter to a fool like me? Not necessarily. While I would like to see stocks like Persimmon do well over the next few months, I always focus on the long term. Given the ongoing shortage of quality housing in the UK, I think the company’s prospects remain solid, regardless of what the BoE does in the near future.

Rather than stressing over the decision I’ll have to make next month, my priority is to get any spare money I can find into my ISA savings account as soon as possible.