Market News
Bank of England interest rates cut ‘nailed on’ - CITY.A.M
The Bank of England is “nailed on” to cut interest rates later today to 4.25 per cent, investors believe.
City of London leaders are anxiously awaiting the Bank’s newest monetary policy decision, which is set to be unveiled at 12.02pm due to a two-minute silence to commemorate Victory in Europe day.
Investment analysts have suggested the chances of an interest rate cut were nearly 100 per cent, though there is some disagreement as to how quickly the Bank will move to lower the cost of borrowing over the course of this year.
Oakglen Wealth chief investment officer Jeff Brummette said a base rate cut was “nailed on” but suggested that most investors will be looking for any suggestions that the Bank will project a faster pace of cuts, as seen at the European Central Bank (ECB).
“Given the recent national insurance contributions rise, hiring slowdown and rising prices, it is possible policymakers will provide more solid guidance for future easing, provided inflation stays under control – but President Donald Trump’s tariffs continue to cause enormous uncertainty and may keep the bank cautious,” he said.
Markets have priced in a further three cuts until the end of the year, indicating that 2025 could end with interest rates as low as 3.5 per cent.
Morgan Stanley economist Bruna Skaric said she expected the terms “gradual and careful” to be ditched from the Bank’s policy approach as rates could fall as low as 3.25 per cent within the next seven months.
Analysts at Oxford Economics and Deutsche Bank believe references to gradualism will not be found in the minutes to the Bank’s monetary policy decision.
“All eyes are on the Bank of England’s MPC to see how far they are prepared to go,” Professor Andrew Angus of the Cranfield School of Management said.
“In the face of gathering economic clouds, businesses and households are desperate for at least a quarter-point cut, but many will be hoping for a bolder half-point reduction.”
Governor Andrew Bailey will deliver a press conference at 12.30pm, during which he is expected to comment on the Bank’s estimates for growth, inflation and its direction of travel in rate-cutting.
He may also speak about how the Bank was modelling the impact of Trump’s tariffs on the UK economy as it decided whether to cut interest rates.
“[We expect] journalists to press Bailey on whether policymakers have shifted in their assessment of growth risks enough to consider cutting at consecutive instead of intermittent meetings,” Peel Hunt’s Kallum Pickering said.
The Peel Hunt economist believes the Bank may upgrade its UK growth forecast for the year from 0.75 per cent to around one per cent, while its inflation peak of 3.75 per cent could be downgraded.
“A likely diversion of cheap Chinese goods into Europe, plus lower energy prices due to softer global demand, and lower import prices from a rising sterling will all help to keep a lid on UK prices.
“Moreover, an additional fear factor coming from increased uncertainty will likely dampen wage and price setting.
“In our view, we believe that markets and the broader economy would respond positively to the BoE cutting rates this week and signalling a succession of rate cuts to come.”
Senior portfolio manager at Allianz, Ranjiv Mann, said collapsed business confidence may weigh on the minds of the Bank’s policymakers, opening up the possibility of a “more dovish stance” being signalled in the minutes.
