Predicted Bank of England interest rate reduction is deemed certain
The Bank of England is expected to slash interest rates to 4.25% today, according to market predictions.
London's finance powerhouses are on the edge of their seats, waiting for the Bank's latest monetary policy announcement, set to be announced at 12:02 PM, due to a two-minute silence in remembrance of Victory in Europe Day.
Investment experts suggest the probability of a rate cut is almost indisputable, though there's some debate on the pace of these cuts throughout the year.
Jeff Brummette, chief investment officer at Oakglen Wealth, states that a rate cut is a certainty but warns that most investors will anticipate a faster pace of reductions, similar to the European Central Bank (ECB).
"In light of the recent national insurance contribution hike, hiring slowdown, and escalating prices, policymakers might offer explicit guidance for future rate cuts, provided inflation stays within control. However, Trump's tariffs persistently create uncertainty and could make the bank cautious in their actions," he said.
The markets have already priced in an additional three cuts by year's end, indicating that 2025 could wrap up with interest rates as low as 3.5%.
Morgan Stanley economist Bruna Skaric predicts that the phrase "gradual and careful" could be eliminated from the Bank's strategy, with potential rates dropping as low as 3.25% within the next seven months.
Analysts at Oxford Economics and Deutsche Bank believe that references to gradualism will be absent from the meeting minutes.
"Everybody is looking to the Bank of England's MPC to see how far they're willing to go," said Andrew Angus, professor at the Cranfield School of Management.
"Businesses and households are desperate for at least a quarter-point cut, but many hope for a bolder half-point reduction."
Governor Andrew Bailey will host a press conference at 12:30 PM, during which he is expected to discuss the Bank's growth, inflation, and rate-cutting projections, as well as how the Bank is evaluating the impact of Trump's tariffs on the UK economy as they decide on rate cuts.
Bailey may also address whether policymakers have shifted their assessment of risk to consider consecutive rate cuts instead of intermittent ones.
Peel Hunt's Kallum Pickering believes the Bank might upgrade its 2025 GDP growth forecast from 0.75% to around 1%, while the inflation peak of 3.75% could be downgraded.
"A likelihood of cheap Chinese goods being diverted to Europe, lower energy prices due to weakened global demand, and decreased import costs following a stronger sterling will help keep price increases in check," Pickering added.
"Moreover, increased concerns stemming from heightened uncertainty should curb wage and price growth."
Senior portfolio manager at Allianz, Ranjiv Mann, believes the Bank's policymakers may take collapsed business confidence into consideration, signaling a potential more accommodative stance in the meeting minutes.
- Investment experts and economists, such as Bruna Skaric from Morgan Stanley and the analysts at Oxford Economics and Deutsche Bank, anticipate the elimination of the phrase "gradual and careful" from the Bank of England's strategy.
- Governor Andrew Bailey, during his press conference at 12:30 PM, is expected to discuss the impact of Trump's tariffs on the UK economy and how these tariffs create uncertainty for the bank’s actions.
- Jeff Brummette, the chief investment officer at Oakglen Wealth, suggests that policymakers might offer explicit guidance for future rate cuts, provided inflation stays within control, in light of the recent national insurance contribution hike, hiring slowdown, and escalating prices.
- Businesses and households are eagerly awaiting the Bank of England's MPC meeting, with many hopeful for at least a quarter-point cut in interest rates, but some hoping for a bolder half-point reduction.
- The markets have already priced in an additional three cuts by the end of the year, predicting that 2025 could wrap up with interest rates as low as 3.5%.
