Investors Pay Attention! BoE Ready to Give Indications on Interest Rate Cuts?

<p>&nbsp;The Bank of England (BoE) is expected to take the first step to cut interest rates from their highest level in nearly 16 years next week after signs that the inflationary crisis is easing.</p><p><br /></p><p>Chairman Andrew Bailey and other top officials largely shrugged off speculation about a rate cut as early as late 2023 and warned of risks to strong wage growth.</p><p><br /></p><p>Economists say the time has come for the BoE to loosen its stance on borrowing costs, something the US Federal Reserve and the European Central Bank have already done after the latest data on headline inflation, wages and economic growth were all weaker than the central bank had expected.</p><p><br /></p><p>A Reuters poll showed economists saw no chance of a rate cut on February 1, but a majority expected one before mid-2024.</p><p><br /></p><p>Investors expect the BoE to start cutting Bank Rate as early as May, with three more cuts through 2024 taking it to 4.25% from 5.25%.</p><p><br /></p><p>The BoE and other central banks have been criticized for not acting quickly enough when inflation started to rise, before Russia's invasion of Ukraine in 2022 sent gas prices soaring. British consumer inflation hit a 41-year high of 11.1% in October 2022 more than five times the BoE's 2% target and then eased slightly in subsequent months, straining household finances and raising concerns about the impact on prices and wages.</p><p><br /></p><p><br /></p><p>Despite rising slightly to 4% in December, inflation is now expected to fall to 2% in the coming months, after a sharp drop in gas prices in recent weeks.</p><p><br /></p><p>Even in November, the BoE predicted that inflation would not return to target until the end of 2025.</p><p><br /></p><p>The BoE is likely to give a message to investors next week about a rate cut, by raising its forecast for inflation over the next two and three years, depending on current market prices.</p><p><br /></p><p>There are other factors that may make the BoE cautious about lowering borrowing costs.</p><p><br /></p><p>Britain's sluggish economy has recently shown little signs of improvement. Energy tariffs paid by consumers are expected to drop in April and mortgage costs are also falling, leaving people with more money to spend.</p><p><br /></p><p>Sanjay Raja, an economist at Deutsche Bank, said the BoE would look for a number of other factors to provide confidence about a rate cut in the coming months, including rising unemployment and lower wage settlements.</p>

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