Currently, it is becoming increasingly widely believed that this week the Bank of England will decide on a new interest rates cut.
It is worth noting that the decision on the further dynamic of monetary policy will be made by the financial regulator of the United Kingdom on Thursday, February 6, in the context of a kind of complex system of circumstances of the surrounding reality, including such facts and factors as a weak forecast of economic growth in the country, the upcoming tax increase paid by businesses, and potentially implementation of the tariff threat from the President of the United States, Donald Trump, which is dangerous for the market.
On Wednesday, February 5, money markets were pricing in a 98% probability that the Bank of England would lower borrowing costs by a quarter point at the February meeting. An appropriate potential solution would take the bank rate to 4.5%.
It is worth mentioning that in December, the financial regulator of the United Kingdom did not change interest rates. At that time, the Bank of England stated that the reasons for the relevant decision were elevated inflation at the 5% mark in the service sector and headline inflation of 2.6% in November. Since then, headline inflation has dropped to 2.5%. At the same time, service sector inflation decreased to 4.4%. This indicator is a 33-month low.
It is worth noting that expectations regarding the number of interest rates cuts have changed. In early January, the prevailing view was that the Bank of England would make two decisions on lowering borrowing costs in 2025. Economists and prominent business voices including the head of British bank Lloyds, Charlie Nunn, held the view that there would be three interest rates cuts in the United Kingdom in the current year. At the same time, the markets are dominated by the expectation that the Bank of England will lower borrowing costs by more than 80 basis points by December. The corresponding forecast provides for the likelihood that the financial regulator of the United Kingdom will make four decisions on interest rates cuts in 2025.
It is worth noting that in the third quarter of last year, a stagnation scenario materialization was observed in the UK economic system. Moreover, the Bank of England has already released a forecast according to which the mentioned state of affairs did not change in the fourth quarter of 2024.
As we have reported earlier, Fed Holds Interest Rates Steady.
