On January 30, Reuters reported that the Bank of England is poised to reduce interest rates next week. The Bank may also signal to investors the possibility of quicker rate cuts than currently anticipated due to the stagnant economy.
Economists surveyed by Reuters unanimously predict a decrease in the BoE's benchmark rate to 4.5% from 4.75% on February 6, along with the release of updated economic growth and inflation forecasts. Investors are indicating nearly an 90% probability of a reduction next week.
Given the economic standstill since the BoE's previous projections in November and declines in key inflation indicators, market participants are closely monitoring any shifts in the Monetary Policy Committee's stance. Data on wage growth unexpectedly accelerating complicates the outlook further.
The evolving market sentiment projects approximately three quarter-point BoE rate cuts for the year, reflecting a shift from initial expectations early in January following fluctuations in British government bond yields.
Finance minister Rachel Reeves may need to respond to rising government borrowing costs post the Oct. 30 budget that could impact fiscal objectives, potentially requiring tax hikes or spending reductions to maintain compliance with fiscal rules.
Considering the Bank of England's measured approach to rate adjustments and the potential impact on corporate and mortgage borrowing rates, there is speculation among experts like Philip Shaw of Investec that more rate cuts may be necessary beyond current market expectations.
The likelihood of a dovish stance from the BoE is expected to influence near-term currency trends, providing reassurance to investors and businesses, as noted by Jane Foley, senior FX strategist at Rabobank.