Jan 23, 2024: The Bank of England (BoE) is anticipated to take a cautious initial step toward lowering interest rates from their highest level in nearly 16 years, responding to signs of easing inflation concerns.
Despite previous dismissals of rate cut speculation by Governor Andrew Bailey and other top officials in late 2023, economists suggest that the time may be approaching for the BoE to reconsider its stringent stance on borrowing costs. The U.S. Federal Reserve and the European Central Bank have already taken steps in this direction, aligning with recent data on headline inflation, wages, and economic growth that fell below the central bank’s expectations.
A Reuters poll revealed that economists do not foresee a rate cut on February 1, but a slim majority anticipates one before mid-2024. Investors, however, are more forward-looking, betting on potential BoE rate cuts as early as May, with three more cuts throughout 2024, bringing the rate to 4.25% from its current 5.25%.
HSBC economists noted that, for this expectation to materialize, the BoE needs to at least appear open to the idea in February. They predict that for the first time since September 2021, none of the Monetary Policy Committee’s (MPC) nine members will vote for a rate hike next week, and one might back a cut. The MPC is also likely to abandon its message suggesting that borrowing costs may need to rise if inflation pressures intensify.