“Bank of England opens the door for rate cuts later this year” says Yael Selfin, Chief Economist at KPMG UK.
“Favourable developments in the Bank of England’s battle against inflation, coupled with continued weakness in the domestic economy, have enabled the MPC to tentatively shift its hawkish stance. While interest rate cuts as early as spring may be premature, the MPC’s forward guidance was more dovish.
“Wage-price spiral worries have receded in recent months, with the Bank revising down its forecast for both wage growth and inflation relative to November in the short term. Nonetheless, persistence in services inflation together with disruptions in the Red Sea pose a potential risk to the inflation outlook, with the latter adding an upside risk to goods price inflation.
“The Bank of England will be wary of running the risk of overtightening, particularly with the impact of previous rate hikes yet to feed through to the economy, and with the Fed and ECB expected to cut rates several times this year. However, we expect the Bank to pause for some time yet before beginning to cut interest rates. Cuts could happen from the summer onwards, by around 100 basis points in total this year, with interest rates potentially settling at around 3% by the second half of 2025.”
