The move comes after official data showed yesterday that inflation over the year to April, dropped sharply from 3.2% to close in on the central bank’s 2% target
Goldman Sachs, HSBC and Deutsche Bank all now expect the UK’s first interest rate cut to come in August, instead of June.
This may prove a blow to Prime Minister Rishi Sunak because this will mean the BoE will not reduce the 5.25% base rate until after the 4 July election date.
The move comes after official data showed yesterday that inflation over the year to April, dropped sharply from 3.2% to close in on the central bank’s 2% target. Although economists had predicted a drop to 2.1%.
Also, key services inflation, a closely-watched measure by the central bank’s rate-setting MPC, was higher than anticipated.
In a note to clients, Goldman Sachs wrote: Given firmer incoming price and wage data, we no longer expect a June Bank Rate cut.
First, services inflation came in at 5.9% YoY in April, well ahead of consensus expectations and the MPC‘s May projection of 5.5% YoY, it stated.
Money markets currently are betting today that there’s just a 10% probability of a rate cut in June, down from more than 50% at the start of the week.
However, earlier in the week the IMF said the UK should cut rates up to three times this year to continue the economy’s “soft landing” out of a mild recession.
The economic body said the BoE should lower rates by “around 50 -75 bps” in 2024, to unshackle the country’s recovering economy after the UK emerged from a technical recession earlier this month.
Keeping Bank rate constant as inflation, and inflation expectations, fall would raise ex-post real rates, which could stall or even reverse the recovery, and lead to an extended undershooting of the inflation target, the IMF said in its latest review of the UK’s finances.