Bank of England Governor Andrew Bailey attends the central bank's monetary policy report press conference at the Bank of England on May 9, 2024 in London. On Thursday, the Bank of England left its key interest rate unchanged at its highest level in 16 years, but signaled a change in policy rates. Interest rates are expected to be cut in the summer as inflation cools further in the UK and the economy is expected to emerge from recession. (Photo by Yui Mok/Pool/AFP) (Photo by Yui Mok/Pool/AFP via Getty Images)
Mok Yui | AFP | Getty Images
LONDON — A number of comments and better-than-expected economic growth figures from the Bank of England have traders and investors racing to narrow down their bets on when the central bank will start cutting its benchmark interest rate. .
Investors were anxiously awaiting any indicators they hoped would provide a hint as to when interest rate cuts would begin. The BOE's benchmark interest rate, which helps set prices for all types of loans and mortgages in the country, has risen rapidly in recent years to curb high inflation.
Markets on Friday priced in a roughly 48% chance of a June rate cut, slightly higher than Thursday's 45% chance, according to LSEG data.
Economists at Swiss bank UBS also changed their view on the timing of the BoE's rate cut, saying they expected the first rate cut to be in June rather than August.
“The broader message and tone of the MPC was more dovish than we expected,” they said in a note released after the BOE's latest rate decision.
The central bank said on Thursday it would keep interest rates on hold for now, stressing that a cut in June was by no means guaranteed. Two Monetary Policy Committee members voted for the rate cut, one more than at the previous central bank meeting.
“June is not a fait accompli, but each meeting is a new decision,” BOE President Andrew Bailey said at a press conference after the meeting.
UBS cited changes in the BoE's forward guidance, inflation expectations and Mr. Bailey's comments on the impact of a rise in the National Living Wage on overall wage growth as reasons for the change.
The Swiss bank said it now expects rate cuts of 25 basis points each in June, August and November.
The latest UK gross domestic product (GDP) figures were released on Friday following the BOE's interest rate decision, showing that the UK economy grew faster than expected in the first quarter of 2024.
GDP increased by 0.6%, compared to the expected 0.4%, marking the first quarter in which GDP growth exceeded 0.5% since the end of 2021.
This has brought the economy out of the technical recession it entered after contracting for two consecutive quarters in the second half of last year.
“This is undoubtedly a strong figure and suggests that the UK economy is emerging from the throes of 2023,” Nomura analysts said in a note published on Friday. This could suggest that inflationary pressures persist and the economy is more resilient to rising interest rates, the researchers said.
The BOE warned on Thursday that indicators of sustained inflation “remain elevated,” but said it expected inflation to move closer to its 2% target in the near term.
“this [GDP] “This announcement further strengthens our view that the Bank of England needs to maintain restrictive policy for longer than markets are pricing in lower inflation,” the analysts said. added that it expects to wait until August to cut rates.
