Emmanuel OchayiAnalysts are eyeing June for a potential interest rate cut by the Bank of England as inflation dips to 3.4% annually, its lowest since September 2021.
The latest data has triggered speculations among economists regarding the central bank’s next move, with many suggesting a dovish stance.
Kallum Pickering, Senior Economist at Berenberg, highlighted the significance of the inflation figures, indicating a possible shift in the MPC’s stance. He stated, “The MPC may give a nod to current market expectations for a first cut in June,” suggesting a gradual move towards policy loosening to support economic recovery.
The Bank of England, grappling with the aftermath of Russia’s invasion of Ukraine and a subsequent gas supply shock, is facing pressure to stimulate growth amidst a technical recession. With inflation expected to hit the 2% target in the second quarter, policymakers are cautiously navigating the timing of rate adjustments.
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At the February meeting, two MPC members advocated for a rate hike, while one favored a cut. Pickering noted that dissenting views often foreshadow policy shifts, hinting at a potential turn towards rate cuts in the near future.
Berenberg forecasts headline inflation to drop to 2% in the spring, projecting a series of rate cuts throughout 2024, with the main rate reaching 4% by year-end. However, Pickering emphasized the risks associated with their prediction, particularly if robust economic growth reignites wage pressures.
As the Bank of England prepares for its interest rate decision on Thursday, market watchers are closely monitoring signals from policymakers. With inflation on a downward trajectory and economic recovery underway, the timing of the first rate cut remains a focal point for analysts and investors alike.
