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BoE to stay on hold through Q2 2024 despite cooling inflation- Reuters poll

Published Dec 07, 2023 06:45 Updated Dec 07, 2023 06:50
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© Reuters. A general view of the Bank of England in the City of London, Britain, September 25, 2023. REUTERS/Hollie Adams/File Photo
 
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By Shaloo Shrivastava

BENGALURU (Reuters) - The Bank of England will keep Bank Rate at 5.25% on December 14 and through the second quarter of 2024, a Reuters poll showed, although a slim majority of participants said risks were tilted towards the first cut coming earlier than expected.

British inflation cooled more than expected to 4.6% in October from 6.7% in September yet economists as a group now expect only a 25 basis point cut in the third quarter compared to 50 basis points in a November poll.

That change in view came after Bank of England (BoE) Governor Andrew Bailey recently said the central bank "will do what it takes" to get inflation to its 2% target.

The BoE was one of the first central banks to kick off the hiking cycle from pandemic-era lows. In 14 consecutive meetings from December 2021 through August this year, the central bank raised Bank Rate by 515 basis points.

All but one of 68 economists, in a Reuters poll taken Dec. 1-6, expected the BoE to hold Bank Rate at 5.25% at its Dec. 14 meeting. One predicted a 25 basis point hike.

Poll medians showed the interest rate will stay at its 15-year high until Q3 next year and will end 2024 at 4.50%.

"The indicators suggest that the economy is picking up, not slowing down. And history tells us that inflation does not just melt away, particularly when demand is as resilient as it still appears to be in the UK," noted economists at HSBC (LON:HSBA).

Around 30%, or 20 of 68 economists, predicted the first cut to come in Q2 of next year. Last month almost 39%, or 24 of 62, had that prediction.

Nearly 48% of economists pencilled in the first cut in Q3, up from 38% predicting that in November.

However, economists were divided on where Bank Rate would be at end-September - 20 said 5.00%, 20 expected 4.75%, seven said 4.50%, three said 4.25% and one said 3.75%.

Markets are fully pricing in a quarter-point BoE rate cut in June next year and a second in September.

Governor Bailey and some other members of the Monetary Policy Committee (MPC) have said interest rates would need to remain high for an extended period.

"We are not in a place now where we can discuss cutting interest rates – that is not happening," Bailey said last week.

However, when asked about the risk for the first rate cut, a slim majority, 55% or 11 of 20 economists who answered, said it would come earlier than expected. The remaining nine said later.

Only a month ago, a clear majority of participants said the bigger risk was it comes later.

Inflation was predicted to average 4.4% this quarter and 4.0% next but was not seen at target until late-2025. Median forecasts showed inflation averaging 7.4% this year, 3.0% next year and 2.1% in 2025.

The economy was predicted to grow 0.4% in 2024 and 1.2% in 2025.

"Despite strong expectations of one, the UK has so far avoided a recession. We expect the economy to skirt one next year too," noted economists at Deutsche Bank (ETR:DBKGn).

"But sluggish growth remains likely, with the UK economy expected to expand by a meagre 0.3% in 2024, driven by weaker consumption, weaker trade, and weaker investment."

(For other stories from the Reuters global economic poll:)

BoE to stay on hold through Q2 2024 despite cooling inflation- Reuters poll
 

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