Major financial institutions, including Morgan Stanley, Citigroup, and UBS Global Research, expect the Bank of England to lower interest rates in December, just one day after its decision to keep rates unchanged during its recent monetary policy meeting.
These expectations followed the alignment of the three institutions with Goldman Sachs, which was the first to adjust its forecasts after the Bank of England announced its new policy, reflecting a shift in the overall sentiment of financial markets toward British monetary policy trends.
The inflation rate in the United Kingdom, currently at 3.8%, remains above the Bank of England's target of 2%, but it showed stabilization in September, coinciding with signs of slowing in labor market data. The bank's Monetary Policy Committee voted by a narrow majority of 5 to 4 to keep interest rates at 4%, with hints of a gradual move toward a rate cut if inflation continues to decline.
Citigroup analysts indicated that the next decision will rest with Governor Andrew Bailey, who suggested that upcoming economic data and the autumn budget may determine the timing for the start of interest rate cuts. Several institutions predicted that the first cut would be in December, followed by another in February or April 2025.
According to data from the London Stock Exchange, markets are pricing in a nearly 60% chance of a 25 basis-point rate cut at the December meeting, reflecting an increasing confidence that the Bank of England is heading towards a gradual easing cycle over the next year.
The current scenario comes within a broader context adopted by central banks around the world, striving to strike a delicate balance between controlling inflation and supporting economic activity. Recent developments suggest that the Bank of England may face challenges in maintaining this balance amid global economic slowdown and declining market confidence.
