Bank of England Governor Andrew Bailey attends a press conference on the Bank of England’s monetary policy report on May 9, 2024 in London. The country looks set to emerge from recession, with the Bank of England set to cut interest rates in the summer. (Photo by Yui Mok/POOL/AFP) (Photo by YUI MOK/POOL/AFP via Getty Images)
Mo Bo | AFP | Getty Images
LONDON — A flurry of comments from the Bank of England and better-than-expected economic growth data have traders and investors scrambling to adjust their bets on when the Bank of England will start cutting its benchmark interest rate.
Investors have been eagerly awaiting any indicators that might provide a hint on when the cuts might begin. The Bank of England’s base interest rate, which helps price various loans and mortgages in the country, has risen rapidly in recent years to help curb high inflation.
According to LSEG data, the market on Friday predicted that the probability of a rate cut in June was about 48%, slightly higher than Thursday’s 45% probability.
Economists at Swiss bank UBS Group AG have mixed views on when the Bank of England will cut interest rates, saying they now expect the first rate cut to come in June rather than August.
“The broader message and tone from the Monetary Policy Committee was more dovish than we expected,” they said in a note following the Bank of England’s latest rate decision.
The central bank said on Thursday it would keep interest rates unchanged for now and stressed that a rate cut in June was not guaranteed. Two members of the Monetary Policy Committee voted in favor of a rate cut, one more than at the central bank’s last meeting.
“The June meeting is not a fait accompli, but every meeting is a new decision,” Bank of England Governor Andrew Bailey said at a post-meeting press conference.
UBS pointed to changes in the Bank of England’s forward guidance, inflation expectations and Bailey’s comments on the impact of rising national living wages on overall wage growth as reasons for the change in its forecast.
The Swiss bank now expects rate cuts of 25 basis points in June, August and November.
The Bank of England released the latest UK gross domestic product data after Friday’s interest rate decision, which showed the UK economy grew more than expected in the first quarter of 2024.
GDP grew by 0.6%, compared with expectations of 0.4%. This was the first quarter since the end of 2021 that GDP growth exceeded 0.5%.
The economy thus emerged from a technical recession that followed two consecutive quarters of contraction in the second half of last year.
“This is certainly a strong number and suggests that the UK economy is emerging from the difficulties it has been in since 2023,” analysts at Nomura Securities said in a report released on Friday. They noted that this may indicate that inflationary pressures persist and the economic impact on More resistance to rising interest rates.
The Bank of England warned on Thursday that a measure of sustained inflation “remains elevated” but also said it expected inflation to approach its 2% target in the near term.
“This (GDP) data further reinforces our view that the Bank of England needs to keep policy restrictive longer than markets price in to curb inflation,” analysts said, adding that they expected the Bank to wait until August. Rates will be reduced again in the next month.
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