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Bank of England set to offer clues on interest rate cut timing, but City expects another hold

Mortgage holders, house hunters and City markets are looking for pointers from BOE policymakers, including Governor Andrew Bailey, on the timing of a rate cut (POOL/AFP via Getty Images)
Mortgage holders, house hunters and City markets are looking for pointers from BOE policymakers, including Governor Andrew Bailey, on the timing of a rate cut (POOL/AFP via Getty Images)

Pressure is mounting on the Bank of England for the first interest rate cut of the post-pandemic era.  But City experts are betting that the wait for action in Threadneedle Street will continue this week – at least for now.

Millions of mortgage holders, house hunters, borrowers and savers will be watching closely, on Thursday at noon, when the next interest rate announcement is due.

The BOE’s official base rate has been at a 15-year high of 5.25% since last August, when its Monetary Policy Committee ended a run of 14 consecutive hikes in its fight against runaway inflation.

Now the consumer price index is heading towards the BOE’s 2% target – it fell to 3.2% in March – the days of double-digit rises seen in the aftermath of Vladimir Putin’s invasion of Ukraine are moving further back.

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And with economy struggling to grow, calls for a cut have been getting louder. But at the same time, there have been signs of stubbornly sticky aspects to inflation, not least in pay data. That has led the BOE to repeat its signals that its base rate will stay higher for longer.

In turn, City traders have pared back their bets on the timing of the BOE’s first cut. There is some speculation that it could come in June, but consensus forecasts are for September.

It is seen as unlikely that this week will be the turning point, as MPC members, led by BOE Governor Andrew Bailey, seek to avoid revving up inflation again as they loosen monetary policy to kickstart the economy.

Analysis from HSBC  said: “If the Bank wants to even leave the door open for a June cut, we think it will need to push back against the market in its May communications”, adding:

“Part of this could be in the language – perhaps emphasising that it can cut rates while keeping them restrictive. And part of it may be in the forecast profile: we suspect the MPC will revise down its inflation forecasts such that they are below target over the medium term.”

David Morrison, senior market analyst at Trade Nation, looked at the voting split this week on the nine-member MPC for clues on timing of the first rate cut since March 2020.

“The last meeting in March, two members who had previously voted to hike rates, changed their vote, so taking away a large hurdle to future rate cuts,” adding:

“One MPC member favoured a rate cut, while the remaining eight went for ‘no change’. It seems likely that split will continue, but it will be interesting if there’s more than one vote for an immediate cut.

“That would be a natural step before the MPC has a majority vote for a cut.”

The economy is also expected to exit a brief and shallow technical recession this week, with gross domestic product data for March forecast to show growth of 0.4%.

HSBC’s experts pointed out that such a reading would be “substantially higher than the [0.1% growth] the BoE expected”, helped by a rebound in the construction sector after it took a hit from wet weather in February.