May 9 2024: The Bank of England is expected to move closer to its first interest rate cut in four years on Thursday as inflation trends downwards. However, the central bank is likely to exercise caution in signaling that a rate cut is imminent.
The widely anticipated decision for the Bank Rate to remain at 5.25%, the highest level since 2008, comes after the BoE’s May monetary policy discussions. The key question for investors is whether the BoE will hint at a potential rate cut in June, aligning with the European Central Bank’s stance, or take a more cautious approach akin to the U.S. Federal Reserve.
Economists like Paula Bejarano Carbo from the National Institute of Economic and Social Research suggest that caution is reasonable, considering factors like robust wage increases in the tight UK job market and geopolitical uncertainties in the Middle East.
While financial markets currently project a quarter-point rate cut in August and additional cuts later in 2024, recent shifts in rate futures markets indicate a rising possibility of an earlier rate adjustment. Market expectations for a June rate cut are nearly evenly split, reflecting investor uncertainty.
Matthew Swannell, a UK economist at BNP Paribas, notes that the BoE may want to act swiftly given the lag between rate changes and their impact on inflation. However, explicit guidance on the timing of a rate cut may not be forthcoming in Thursday’s announcement.
A potential acceleration towards a rate cut may be reflected in the voting pattern of the BoE’s Monetary Policy Committee, with some analysts suggesting Deputy Governor Dave Ramsden could join Swati Dhingra in favor of a cut. Ramsden has previously indicated concerns about weaker-than-expected inflation.
The BoE’s new inflation projections and any significant revisions could also send messages to investors about the likelihood of future rate cuts. The bank’s forecasts are influenced by market pricing ahead of its MPC meetings.
Governor Andrew Bailey and other officials will provide further insights in a press conference following the rate decision announcement, minutes of the May meeting, and the latest economic forecasts.
