UBS revises its forecast for a Bank of England rate cut to August instead of May

UBS has revised its forecast regarding the direction of Bank of England interest rates. The bank now anticipates a cycle of easing interest rates to commence with a 25 basis point cut in August, as opposed to their previous expectation of the first cut occurring in May.

In its last meeting, the Bank of England kept its rate unchanged at 5.25% and indicated that it would "keep under review for how long bank rate should be maintained at its current level," while awaiting further evidence that inflation would consistently return to the 2% target.

Official data released last month showed that British inflation unexpectedly held steady at 4.0% in January, defying forecasts of an increase. Meanwhile, wages grew at the slowest pace in over a year during the final three months of 2023.

UBS maintains its expectation for the labor market and inflation to continue easing.

"It seems improbable to us that the BoE, facing elevated inflation, would initiate rate cuts ahead of other central banks," UBS stated. Although the June meeting presents the next opportunity, UBS suggested that the MPC would likely opt to wait until August when it updates its projection.

Overall, UBS foresees a total of 75 basis points of cuts this year—25 basis points each in August, November, and December—down from its previous forecast of 100 basis points. This would result in the policy rate reaching 4.50% by the year-end.

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