Will the Bank of England cut interest rates in June or August? You might find out tonight!

On Thursday, Bank of England Governor Bailey is likely to send a stronger signal on when the central bank can cut borrowing costs from a 16-year high

On Thursday, Bank of England Governor Bailey is likely to send a stronger signal on when the central bank can cut borrowing costs from a 16-year high.
Economists and markets expect that the Bank of England\’s Monetary Policy Committee (MPC) will keep the benchmark lending rate unchanged at 5.25% tonight.
In addition, the Bank of England will also publish its forecasts for inflation and economic growth.
Bailey is likely to provide investors with a clearer message on whether he expects to start easing policy at his next meetings in June and August. His tone has previously turned dovish. But when will he take action? The issue faced disagreements within the committee.
On the eve of the British general election, the governor is also facing increasing political pressure.
British Chancellor of the Exchequer Jeremy Hunt has repeatedly raised the possibility of cutting interest rates, saying it would give voters a feel-good factor.
While a majority of the committee\’s nine members are expected to vote for no change in policy, it\’s possible that more policymakers will join in supporting a rate cut.
After almost unanimous approval at the last meeting, the outside world believes that there may be a 7:2 disagreement at this meeting. That is, the majority supports maintaining the policy unchanged. However, Vice President Lumsden is considered to be the most likely to join Ding. Guerra\’s dovish camp. The former showed dovish tendencies in a recent speech.
The minutes of the meeting are likely to once again highlight the serious differences among the majority on the timing of future interest rate cuts.
Bank of England monetary policy members Mann, Haskell and Green have all said they are reluctant to support a rapid rate cut, citing strong wage growth and service sector inflation.
Overview of the Bank of England’s Monetary Policy Committee Eagles and Doves Since the March meeting, Bailey and Ramsden’s dovish comments have triggered speculation that the Bank of England may start cutting interest rates in June or August this year.
Both men have recently separated the situation in Britain from resurgent inflation in the United States. More have compared the situation in Britain to that of the euro zone. Markets now expect the European Central Bank to start easing policy next month.
In March this year, the MPC added new language, acknowledging that even if interest rates were cut, policy would likely remain restrictive.
The MPC may take further action on Thursday if the BoE wants to prepare markets for a rate cut in June.
While some economists believe this could lead the committee to indicate in guidance that they are leaning toward cutting interest rates in the coming months, others believe the MPC will be more cautious in its wording.
UBS analyst Anna Titareva said: We believe that if the committee views the June interest rate meeting as a possible interest rate cut node, they may need to outline at Thursday\’s meeting further evidence that they need to see by June.
The Bank of England may make a big fuss about economic forecasts. Another clue to the Bank of England\’s policy path will be the Bank\’s new inflation forecasts.
If the Bank of England thinks markets are being too cautious about the timing and size of future rate cuts, it could signal this by showing a forecast for inflation to be below 2% over the next few years.
The Bank of England is also likely to raise its growth forecast after the economy gets off to a stronger-than-expected start in 2024.
Officials had expected first-quarter GDP growth of just 0.1%. But economists believe data due on Friday will show UK GDP rising by 0.4% in the first quarter.
Business surveys showed that economic growth momentum continued into the second quarter.
Bank of America analyst Ruben Segura-Cayuela said: We expect the Bank of England\’s new forecast to show slightly better economic growth and a more encouraging inflation trajectory.
If the Bank of England\’s guidance or forecasts are more dovish, it may cause bond traders to increase their bets that the Bank of England will cut interest rates sooner.
Money markets currently expect policymakers to begin cutting interest rates in August and see a 40% chance of a rate cut in June. A total of two rate cuts this year, each by 25 basis points.
Matthew Landon, global market strategist at J.P. Morgan Private Bank, said the rate cut expected by the market is too early, but it is getting closer.
This is the message we expect the Bank of England to deliver tomorrow.
A strong start to the year for the UK economy has put the Bank of England on track for a first interest rate cut in August. But we would be surprised if Bailey did not consider a June cut at all.
Any sign that interest rates could be cut as early as next month could weigh on the pound and boost British bonds.
Earlier this year, British bonds sold off as traders stopped betting that Britain would cut interest rates as many as six times in 2024.
The two-year UK government bond yield, which is most sensitive to monetary policy, is running around 4.3%.
In response, Goldman Sachs lowered its forecast for the pound against the dollar, indicating that the outlook for the pound is less optimistic in the context of tonight\’s Bank of England meeting and recent market trends.
Goldman Sachs said that recent remarks by Bank of England Deputy Governor Ramsden indicate that inflation risks tend to be downward. This has contributed to bearish sentiment.
Moreover, the re-pricing of policies in the market has weakened the support for the pound against the procyclical background, putting the pound in a challenging position.
Goldman Sachs currently expects the short-term (3-month) and medium-term (6-month) levels of GBP/USD to be 1.24, which is a downward revision from the previous forecast.
The 12-month forecast was also revised from 1.35 to 1.28.
In addition, for QT, although the Bank of England will not make a decision on the future of QT until September, there is increasing speculation that the Bank of England may stop selling bonds later this year.
The central bank is currently reducing its balance sheet at a rate of 100 billion pounds per year, including a mixture of active bond sales and non-renewal at maturity.
Economists believe the Fed may end its bond sales later this year as it begins cutting interest rates.
Sanjay Raja, chief UK economist at Deutsche Bank, warned that active QT could exacerbate the tightening of financial conditions. This would run counter to the Bank of England\’s thinking.

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