The Bank of England is expected to reduce interest rates on Thursday, in the midst of a complex background of the most important prospects for the growth of domestic growth, the upcoming increase in taxes paid by companies and US President Donald Trump, tariff threats of tariffs.
As of Wednesday morning, money markets are priced at 98% likelihood of a quarter of points at a meeting in February, which would take the bank rate to 4.5%. Boe He decided to hold on At his previous gathering in December, citing “elevated” inflation services of 5% and a press title more than expected of 2.6% in November. That rate has Since it cools to 2.5%while services inflation fell to 33-month low 4.4%.
Since January, merchants have increased their bets on the total number of boe rates that are likely to occur during 2025. Where only two decorations, economists and prominent business voices were expected at the beginning of the year, including British Bank chief Lloyds,, Charlie NunnThey said they were predicting three lining. The markets, meanwhile, prices more than 80 base points by December, suggesting that four reductions could be a possibility.
These bets were built on the back of several surprises of the data, including Weaker retail sales data than expected and disappointing growth in November.
Closely viewed Thursday, a vote will be divided among nine members of the Monetary Policy Committee-S unanimous or an almost uniform decision that suggests a bias to mitigate-and BOE’s updated growth and inflation projections.
Economy in the UK stagnated in the third quarterand there is a Boe already forecast That the last three months last year have also not shown growth.
Each fall on Boe growth projections in 2025, or its chances that inflation reaches 2.7% in the fourth quarter 2025 and will facilitate 2.2% in 2026, will be supported by pigeons.
Uncertainty in front
Two immense major development could complicate a bank’s forecast, which is likely to be examined by Boe Andrew Bailey governor.
The first is that the central bank now observes any potential inflation influence from fiscal reforms The UK Government announced in October, which includes a significant increase in taxes that companies face on canvas lists. British Chamber of Commerce Research Published January He said some companies plan to increase prices as a result of higher costs.
The second question is how the UK will be conducted in the middle of Trump’s unstable trade policy and The beginning of his Tit-For-Tat A trade war with China, which is currently Tamer than he was originally afraid. Trump has threatened to stun the tariff about imports from the UK and the European Union but its Delay of duties in Canada and Mexico He suggested that other countries could negotiate their exit from the fight.
Also suggested that The UK could benefit From wider trade disputes with the US because of a more balanced trade relations with the world’s largest economy, which allows an increase in investment in the UK and new trade capabilities.
“If Chinese goods find their way to the continent and in the UK and puts pressure on prices, it gives [European Central Bank] And Boe more extent to reduce interest rates more aggressively than markets are expected this year, especially since growth is expected to weaken in the coming quarters, “Boardman-Weston, CEO of CNBC, told CNBC, CEO and CEO of Investment Director Wealth Management “Street Signs” on Tuesday.
This is likely to confirm the distinction of monetary policy between BOEI ECB – which markets believe that this year will be reduced by the entire percentage point – and the US Federal Reserve, recorded by pruning a Half points most.
Anthony Karaminas, a global boss of underrated fixed income on Sei, said that the situation in the UK “Stagflacal-Lite”-Economic stagnation in combination with inflation above the goal-bi challenge for Boe because “seeks to support economic activity, while also holding on to its an explicit mandate for inflation. “
“Looking in advance, sticky inflation can limit the ability of Governor Bailey to reduce rates significantly,” Karaminas said in comments E -though.
This is the Central Bank progressed by the rapid pace of mitigation, the government bond market in the UK “could suffered a penalty of credibility in the form of a much higher premium,” he said, It needs a dose of growth guided by productivity. “
Borrowing costs in the UK Spiked in January In the midst of the global bond market, there is a sale and insidious concern about British deficit and poor growth forecasts. The cost of borrowing has since fallen significantly.
