Economists Predict Rate Cuts
Reuters polled economists. They expect four rate cuts from the Bank of England this year. The cuts are intended to assist the faltering economy. They cited upside risks to inflation. Policymakers could cut rates fewer. Interest rate futures price just two cuts. Volatility in the global bond market indicates inflation worry linked with interest rate changes. These concerns tie back to Trump’s economic policies.
Expectations for Inflation Data and Rate Cuts
British inflation eased in the past month. Core inflation dropped significantly. That would leave room for more cuts. The Federal Reserve might have a single cut. Prices futures for two BOE rate cuts of 25 bps. A majority of 60% of the economists expect four cuts. This would raise Bank Rate to 3.75%. That forecast remained unchanged. Every economist surveyed anticipates a cut on Feb. 6, highlighting the importance of upcoming interest rates decisions.
But Concerns And Uncertainties Still Remain
Others doubt the number of cuts. They reflect prudent words from policymakers. Economists at JP Morgan said further underlying inflation remains elevated. Inflation expectations in survey data are on the rise. The BOE would probably sit on its hands. They expect a February cut. The Bank will struggle to deliver any reassuring messages. This is particularly the case if concerns about interest rates increase along with inflation expectations.
The Outlook For Inflation And Market Turmoil
The largest part of their consensus is that UK inflation will be worse than forecast. Economists predict Consumer Price Index inflation at 2.5 percent for this year. Next year, they project Consumer Price Index inflation at 2.1 percent.
The pound has been falling recently. So has UK government debt. It’s a parallel to U.S. Treasury sell-offs. That drove 10-year gilt yields to their highest since 2008, reflecting global concerns about rising interest rates.
Growth and Global Factors
The yield rise is largely global. The domestic fiscal backdrop also risks pushing UK assets down. The MPC may maintain Bank Rate at higher levels. This would mitigate the effects of a weaker pound. This is viewed as a risk, rather than a baseline. The UK economy grew at a snail’s pace last year. It is expected to expand 0.9% in 2024. It is expected to expand by 1.3 percent this year. Next year it is projected to expand 1.5% as interest rates continue to affect economic growth.
