Assessing the Timing of Bank of England's Rate Cut

The Bank of England (BoE) is standing firm on maintaining its bank rate at 5.25%, but whispers of a forthcoming cut are growing louder. While the inclination towards a reduction might wait until the August meeting, there's a palpable chance for an earlier adjustment, potentially as soon as June 20th.

BoE Rate Decision 

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Description automatically generatedSource: Finlogix Economic CalendarReasons advocating for a postponement until August are grounded in persisting concerns over wage pressures. Despite a slight dip, average weekly earnings remain elevated at 5.6% year on year as of February, following a peak of 8.5% last July. Moreover, with economic forecasts due for an update in August, policymakers might prefer to wait for more comprehensive data before committing to a course of action. This delay would also allow the BoE ample opportunity to articulate the rationale behind any rate change, particularly during the scheduled monetary policy report press conference.

However, the allure of a June adjustment persists. Fuelled by the recent reduction in the energy price cap, consumer price inflation is expected to hover near the BoE's 2% year on year target by April and May, aligning neatly with the June 19th MPC meeting. Furthermore, there's been a discernible shift in sentiment within the MPC towards favouring a rate cut, as evidenced by recent voting patterns, potentially signalling a majority inclination towards easing by June.

Looking ahead, projections hint at two further 25 basis point cuts by year-end, potentially settling the bank rate at 4.5% by the close of 2024. Subsequent adjustments in the first half of 2025 could follow, culminating in a stable rate of 3.5% thereafter. Such adjustments would position UK interest rates below those of the US but above those of the Eurozone, reflecting the unique inflationary pressures and economic dynamics at play.

In addition to policy decisions, the MPC is poised to unveil updated forecasts, which could signal a modest reduction in inflation predictions for 2024 and 2025. Such adjustments would lay the groundwork for potential rate cuts soon, setting the stage for the BoE's forthcoming monetary policy decisions.

Insights Inspired by Berenberg (BoE Rate): Credit to Their Analysis for Shaping Some Aspects of This Text

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