- ORIGINAL NEWS
Traders reassess Bank of England rate cuts as UK grows at fastest rate in nearly 3 years
- SUMMARY
After signaling potential interest rate cuts in August, the Bank of England (BOE) and better-than-anticipated economic data have sparked uncertainty among investors regarding the timing of future rate reductions.
Despite the BOE’s decision to maintain interest rates, some members voted to cut them, suggesting a possible shift in sentiment.
UBS economists have revised their forecast, predicting a rate cut as early as June, based on changes in the BOE’s guidance and Governor Bailey’s comments on wage expectations.
However, the BOE remains cautious, emphasizing that a June cut is not guaranteed.
The latest gross domestic product (GDP) data shows the UK economy grew by 0.6% in the first quarter of 2024, exceeding expectations and exiting a technical recession.
This strong economic performance indicates resilience to higher interest rates and suggests that inflation may remain persistent.
Analysts believe the BOE may need to maintain restrictive policies for longer than anticipated to curb inflation.
Consequently, they predict a delay in rate cuts until August or later.
Investors and traders are adjusting their bets based on the mixed signals from the BOE and economic data.
Friday’s data pushed up market expectations for a June rate cut slightly, but the overall outlook remains uncertain.
- NEWS SENTIMENT CHECK
- Overall sentiment:
positive
Positive
“The BOE’s interest rate decision was followed Friday by the latest U.K. gross domestic product data, which showed that the U.K. economy grew by more than expected in the first quarter of 2024.”
“GDP increased by 0.6% compared to the 0.4% estimate, marking the first quarter since the end of 2021 in with GDP growth exceeded 0.5%.”
Negative
“Investors had been eagerly awaiting any indicators in the hope that they would provide hints about when cuts may begin.”
“The BOE’s benchmark rate helps price all sorts of loans and mortgages in the country and has risen rapidly over recent years to help tame high inflation.”