Investors beef up bets on BoE interest rate cut
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Investors are coming round to the view that the Bank of England is likely to cut interest rates this week, encouraged by signs that inflationary pressures are receding globally.
Traders in swaps markets are placing a probability of around 65 per cent that the central bank will lower rates from a 16-year high of 5.25 per cent on Thursday, having priced a 40 per cent likelihood following the UK’s latest inflation figures earlier this month.
Investors said the moves have come as the
John Pattullo, co-head of global bonds at Janus Henderson said that UK rate-setters now “seem to have a greater focus on a broad variety of inflation factors, rather than just services inflation,” and that “current rates are restrictive and will need to fall as inflation has already fallen significantly”.
Calls for rate cuts come as the BoE has kept its key deposit rate at 5.25 per cent since August last year. Headline inflation has remained at the central bank’s 2 per cent target for two successive months, but is expected to pick up later this month because of higher energy prices.
Some investors say this could pave the way for an opportunistic rate cut on Thursday before holding at the following meetings.
“I think the BoE will probably cut but this will end up one and done for the cycle” said Mark Dowding, chief investment officer at RBC BlueBay Asset Management. “Inflation will be higher by the next meeting so there is only a brief window to cut”.
