Bank of England Expected to Cut Rates by 75 Basis Points in 2024
2min read The Bank of England is expected to further reduce interest rates by 75 basis points throughout the year, according to recent market expectations. This move comes as the global economy grapples with increased trade tensions, particularly those stemming from U.S. President Donald Trump's tariffs. Governor Andrew Bailey and his colleagues at the Bank of England have consistently advocated for a cautious and gradual approach to lowering borrowing costs, a stance that is likely to continue given the prevailing economic uncertainties.
The Bank of England has already implemented three rate cuts since August of the previous year, a pace that is slower compared to the U.S. Federal Reserve and the European Central Bank. This measured approach is driven by concerns over inflationary pressures in the job market, despite Britain's economy showing signs of growth that are expected to outpace those of Germany and France this year. However, Bailey has recently highlighted the economic risks posed by escalating global trade tensions.
On Wednesday, the Federal Reserve maintained its key interest rate and noted increased uncertainty about the economic outlook, citing higher risks of both unemployment and inflation. Market participants are widely expecting a quarter-point cut by the Bank of England on Thursday, with nearly full pricing in for three more reductions by the end of 2025. This would bring the benchmark Bank Rate down to 3.5% from its current level of 4.5%.
Most economists polled last month anticipated that the Bank of England would continue its once-a-quarter rate reduction rhythm, leaving the Bank Rate at 3.75% by the end of the year. However, analysts from BofA Global Research have revised their forecast, predicting four rate reductions this year. They attribute this to UK inflation rising less than previously anticipated, partly due to cheaper imports from China, which have been effectively shut out of the U.S. market.
Despite these forecasts, it is likely too early for the Bank of England to alter its cautious stance. Analysts expect the Bank to retain its gradual and meeting-by-meeting guidance amidst the current uncertainties. BNP Paribas Europe economist Dani Stoilova predicts that the Bank of England's new forecasts will show inflation returning to the central bank's 2% target by the end of 2026, a year earlier than previously expected. However, Bailey and the Monetary Policy Committee are likely to wait and observe the impact of Trump's tariffs and retaliatory measures from China and other countries on supply chains and inflation.
The Bank of England is scheduled to announce its May interest rate decision and the latest economic forecasts at 1102 GMT, with a press conference by Governor Bailey and other top officials following at 1130 GMT. The delay in the announcement is to avoid disrupting a moment of silence marking the 80th anniversary of the end of World War Two in Europe.
