Money
markets
assign
a
roughly
60%
probability*
to
the
Bank
of
England
cutting
interest
rates
in
June.
But
with
the
Bank
keen
to
stress
that
the
decision
is
still
“data
dependent”
and
not
a
done
deal.
The
most
recent
Bank
of
England
meeting
on
May
9
was,
as
expected,
a
“no
change”
meeting,
with
interest
rates
held
at
5.25%.
But
there
were
obvious
changes
since
the
March
meeting
–
one
more
member
of
the
9-strong
monetary
policy
committee
had
voted
for
a
cut.
While
the
ratio
of
“no
change”
to
“cut”
votes
is
7-2,
more
members
are
likely
to
join
the
cohort
in
favour
of
a
reduction
in
the
coming
months.
Since
the
Bank
raised
interest
rates
in
August
2023,
every
subsequent
press
conference
has
featured
the
same
question
asked
in
different
ways:
when
will
you
cut
rates?
And
the
answer
was
always
inevitably:
not
yet.
So
the
May
press
conference
started
on
a
similar
footing
with
governor
Andrew
Bailey
saying,
“We
are
not
yet
at
the
point
at
which
we
can
cut
Bank
rate”.
But
a
noticeable
shift
in
the
messaging
had
occurred.
“Not
yet
…
but
soon”
is
the
new
guidance
from
the
Bank.
When
governor
Bailey
said
“a
change
in
Bank
rate
in
June
is
neither
ruled
out
nor
a
fait
accompli”,
it’s
the
first
time
a
specific
month
has
been
mentioned.
Known
for
his
extreme
caution
in
choosing
his
words,
this
felt
significant.
“Fait
accompli”
is
a
direct
echo
of
ECB
vice-president
Luis
de
Guindos,
who
told
Le
Monde
that
a
June
6
rate
cut
by
the
European
Central
Bank
is
a
fait
accompli.
“The
language
and
tone
of
today’s
statement
tells
us
that
either
way
[the
first
BoE
rate
cut]
will
be
sooner
rather
than
later,”
said
Morningstar’s
chief
market
strategist
for
Europe,
Michael
Field.
So
the
ECB
is
the
first
of
the
central
banks
to
make
a
decision,
on
June
6,
in
a
packed
schedule
which
includes
the
Bank
of
England
and
the
Federal
Reserve.
Stock
and
bond
markets
have
now
adjusted
to
the
changed
narrative
that,
because
of
stronger
inflation
in
the
US,
the
Fed
will
not
in
fact
“go
first”
and
lead
the
world
into
monetary
easing
–
as
it
led
the
Western
world
into
monetary
tightening.
The
Bank’s
Bailey
responded
to
the
suggestion
that
the
UK
is
waiting
on
the
Fed.
“There’s
no
law
that
says
the
Fed
moves
first
and
everyone
else
has
to
follow,”
he
said
at
last
week’s
press
conference.
A
lot
still
depends
on
the
UK’s
economic
data,
with
the
Bank
watching
both
inflation
and
jobs.
April
inflation
numbers
are
due
on
May
22
and
we’ve
just
had
stronger-than-expected
employment
and
wage
growth
data.
In
response
to
the
latter
data
set,
the
Bank’s
chief
economist
warned
that
this
may
have
changed
the
outlook
for
rates
once
again.
Inflation
Forecast
to
Fall,
Then
Rise
Again
Still,
the
key
inflation
forecast
is
intact.
While
CPI
fell
to
3.2%
in
March,
it
is
expected
to
fall
in
the
coming
months
towards
the
2%
target,
and
even
undershoot
that,
a
prospect
that
seemed
unlikely
at
the
start
of
the
year.
But
CPI
is
then
expected
to
rise
again
as
2024
progresses,
posing
a
dilemma
for
the
Bank,
which
doesn’t
want
to
raise
a
“mission
accomplished”
banner
only
for
inflation
to
resurface
again.
If
the
Bank
were
to
cut
rates
in
June,
the
Bank’s
policymakers
are
keen
to
stress
that
monetary
policy
would
still
remain
restrictive
if
official
rates
were
cut
to
5%
next.
So
one
cut
is
not
necessarily
the
beginning
of
a
rapid
cycle
of
monetary
easing,
unwinding
the
14
interest
rate
increases
that
we
saw
from
2021
to
2023.
Interest
rates
are
still
at
a
15-year
high,
rising
from
0.10%
to
5.25%
in
less
than
three
years.
After
the
May
press
conference,
industry
expert
reaction
was
mixed;
some
thought
that
the
starting
gun
had
been
fired
on
a
June
cut,
others
thought
that
the
Bank
will
wait.
The
first
view
was
picked
up
by
Tomasz
Wieladek,
chief
European
economist
at
T.
Rowe
Price:
“Overall,
the guidance
today is
a
strong
signal
to
investors
that
the
Bank
of
England
will
likely
cut
by
more
than
markets
expect
this
year. We
now
think
the
probability
of
a
June
cut
is
much
higher
and it
is
likely
that
the
Bank
of
England
will
end
up
cutting
three
times
this
year.”
UK
Rate
Cut:
If
Not
June,
Then
August?
But
Henry
Cook,
senior
economist,
MUFG
EMEA,
argued
that
an
August
cut
was
more
likely.
“Despite
the
optimistic
tone
of
today’s
meeting,
it
wouldn’t
be
a
surprise
to
see
policymakers
err
on
the
side
of
caution
and
wait
until
August
to
get
the
ball
rolling
with
rate
cuts.”
Having
been
criticised
for
being
too
slow
to
react
to
rising
inflation,
the
Bank
will
be
wary
of
easing
monetary
policy
while
inflation
is
still
a
threat.
This
theme
was
picked
up
by
Shweta
Singh,
chief
economist
at
Cardano:
“Whilst
a
June
rate
is
likely,
this
is
not
our
base
case.
The
risk
of
moving
too
soon
is
still
there.
“A
policy
mistake
could
ease
financial
conditions
and
cause
a
resurgence
in
inflation
expectations,
especially
as
the
full
effects
of
recent
adjustments
to
state
pension
payments,
benefits
and
minimum
wage
levels
are
yet
to
be
see.
Accordingly,
we
expect
the
MPC
to
err
on
the
side
of
caution
and
wait
until
August
to
make
their
first
policy
adjustment
for
this
cycle.”
The
next
Bank
of
England
meeting
is
on
June
20.
After
that
the
next
decision
is
on
August
1,
when
the
Bank
will
produce
its
quarterly
monetary
policy
report
and
press
conference.
*
Based
on
overnight
index
swaps
traded
on
the
Intercontinental
Exchange
(ICE)
at
May
15.
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