(Reuters) – The Bank of England (BoE) is expected to start easing monetary policy with a 25 basis point rate cut in August instead of May, according to updated forecasts from UBS Global Research published on Monday.
The monetary institution left its main key rate unchanged, at 5.25%, at its last meeting and said it was waiting for more evidence that inflation would return to the 2% target before “re-examining the duration for which this rate should be maintained at its current level”.
Official data released last month showed that British inflation remained stable at 4.0% in January, while consensus had expected an acceleration. Wages further increased at the slowest pace in more than a year in the final three months of 2023.
“The Monetary Policy Committee’s (MPC) focus on additional evidence that inflation is not taking hold suggests that May may be premature for the first (rate) cut,” write economists at ‘UBS in a note.
“It seems unlikely to us that the Bank of England will start cutting rates first,” adds UBS, referring to projections that the US Federal Reserve (Fed) and the European Central Bank (ECB) could both cut their rates in June.
Of the main developed countries, the United Kingdom is the one which faces one of the highest inflations, but UBS continues to anticipate an easing in the labor market and a slowdown in price movements in the long term. country.
According to the Swiss bank, it will probably be necessary to wait until the August meeting, when the forecasts will be updated, for the BoE’s monetary policy committee to decide to reduce the interest rate.
A Reuters survey of economists showed in February that Britain’s central bank would begin cutting policy rates in the third quarter, with a slim majority of economists expecting the first cut in borrowing costs to come in August. .
UBS forecasts a total rate cut of 75 basis points this year in the UK, a reduction of 25 points for each of the August, November and December BoE meetings – compared to a previous forecast of a 100 point cut , which would bring the main key rate to 4.50% by the end of the year.
(Reporting Roshan Abraham in Bangalore; French version Claude Chendjou, edited by Blandine Hénault)
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