Bank of England Governor Andrew Bailey attends the central bank’s press conference on the Bank of England’s monetary policy report in London on May 9, 2024. The Bank of England left its key interest rate at a 16-year high on Thursday but indicated it would be cut over the summer as inflation in the United Kingdom continues to cool and the country looks set to emerge from recession. (Photo by Yui Mok / POOL / AFP) (Photo by YUI MOK/POOL/AFP via Getty Images)
Yui Mok | Afp | Getty Images
LONDON – A series of comments from the Bank of England and better-than-expected economic growth numbers have left traders and investors struggling to refine their bets on when Britain’s central bank will start cutting its key interest rate.
Investors had been eagerly awaiting the indicators, hoping they would provide clues as to when cuts might begin. The BOE’s key interest rate helps price all types of loans and mortgages in the country and has risen rapidly in recent years to curb high inflation.
According to LSEG data, markets on Friday were pricing in about a 48% chance of a rate cut in June, slightly higher than the 45% chance on Thursday.
Economists at Swiss bank UBS were among those who changed their minds on when the BOE might cut interest rates, saying they now expected the first rate cut to come in June instead of August.
“The MPC’s broader message and tone was more dovish than we expected,” said a statement released following the Bank of England’s latest interest rate decision.
The central bank said on Thursday it would keep interest rates unchanged for now, stressing that a rate cut in June was far from guaranteed. Two members of the Monetary Policy Committee voted in favor of cutting interest rates, one more than at the central bank’s previous meeting.
“June is not a fait accompli, but every meeting is a new decision,” BOE Governor Andrew Bailey said in a press conference after the meeting.
UBS cited changes to the BOE’s forward guidance, inflation expectations and comments from Bailey on the impact of increased national living wages on overall wage growth as reasons for the changed expectations.
The Swiss bank now assumes that interest rates will be reduced by 25 basis points in June, August and November, it said.
The BOE’s interest rate decision was followed on Friday by the latest UK gross domestic product data, which showed the UK economy grew more than expected in the first quarter of 2024.
GDP rose 0.6% compared to the 0.4% estimate, marking the first quarter since the end of 2021 in which GDP growth exceeded 0.5%.
This enabled the economy to overcome the technical recession it entered after two consecutive quarters of contraction in the second half of last year.
“This is undeniably a strong number and suggests the UK economy will shake off its problems from 2023 onwards,” Nomura analysts said in a note published on Friday. This could indicate that inflationary pressures are continuing and the economy is more resilient to higher interest rates, they noted.
The BOE warned on Thursday that indicators of sustained inflation “remain elevated” but also said it expects inflation to move closer to the 2 percent target in the near term.
“The [GDP] The publication further reinforces our view that the Bank of England will need to maintain its restrictive policy for longer than markets have priced in to contain inflation,” analysts said, adding that they expect the central bank to wait until August before cutting interest rates.
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2024-05-10 12:00:06
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