Bank Of England Expected To Hold Rates At 16-Year High
The Bank of England announces its latest interest rate decision on May 9th. While the central bank is not expected to alter interest rates, investors will be focusing on two key questions that they hope the accompanying report and press conference will answer:
• When will interest rates start to fall in 2024?
• Where does the Bank see inflation going this year?
March saw a notable dovish shift from the BoE, hinting at a potential future cut. This marked the first time in the current cycle that no members of the Monetary Policy Committee voted for a hike. In March, Bailey said it was reasonable for investors to bet on rate cuts this year.
The critical question is when the central bank will start cutting rates.
Market pricing suggests August, and the OECD report predicts the third quarter will be the most likely period, with rates expected at 3.75% by the end of 2025.
The UK now has to get up to speed with the changed expectations for interest rates, which can be summed up as higher for longer. Until recently, the Federal Reserve was expected to take the lead and cut interest rates this spring, with other central banks to follow. However, the Fed is now signaling that rate cuts are not on the horizon, and it ruled out a rate hike at its meeting on May 1st. The European Central Bank could be the first to cut rates at its June meeting as inflation continues to fall in the eurozone.
The UK inflation picture is better than that of the US, but not by much. It is still witnessing some of the "stickiness" in inflation that has troubled Fed policymakers. However, UK inflation at 3.2% is still below that of the US, where the latest CPI reading was 3.5%. As the OECD pointed out this week, the UK economy is weaker than the US, so monetary easing could be less problematic and help stimulate parts of the economy. Investors have been building up bets against the pound as conviction grows that the Bank of England will start cutting interest rates by the summer, ahead of its US counterpart
Speculation amongst currency traders regarding a fall in the sterling has reached a 16-month high, data from the US Commodity Futures Trading Commission shows. Meanwhile, according to State Street, one of the world's largest custodian banks, asset managers have turned significantly bearish on the pound since March last year.
The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.
• When will interest rates start to fall in 2024?
• Where does the Bank see inflation going this year?
March saw a notable dovish shift from the BoE, hinting at a potential future cut. This marked the first time in the current cycle that no members of the Monetary Policy Committee voted for a hike. In March, Bailey said it was reasonable for investors to bet on rate cuts this year.
The critical question is when the central bank will start cutting rates.
Market pricing suggests August, and the OECD report predicts the third quarter will be the most likely period, with rates expected at 3.75% by the end of 2025.
The UK now has to get up to speed with the changed expectations for interest rates, which can be summed up as higher for longer. Until recently, the Federal Reserve was expected to take the lead and cut interest rates this spring, with other central banks to follow. However, the Fed is now signaling that rate cuts are not on the horizon, and it ruled out a rate hike at its meeting on May 1st. The European Central Bank could be the first to cut rates at its June meeting as inflation continues to fall in the eurozone.
The UK inflation picture is better than that of the US, but not by much. It is still witnessing some of the "stickiness" in inflation that has troubled Fed policymakers. However, UK inflation at 3.2% is still below that of the US, where the latest CPI reading was 3.5%. As the OECD pointed out this week, the UK economy is weaker than the US, so monetary easing could be less problematic and help stimulate parts of the economy. Investors have been building up bets against the pound as conviction grows that the Bank of England will start cutting interest rates by the summer, ahead of its US counterpart
Speculation amongst currency traders regarding a fall in the sterling has reached a 16-month high, data from the US Commodity Futures Trading Commission shows. Meanwhile, according to State Street, one of the world's largest custodian banks, asset managers have turned significantly bearish on the pound since March last year.
The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.
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