Bank of England Set to Initiate Interest Rate Reductions in May Amid Inflation Forecast

Economists foresee the Bank of England embarking on interest rate cuts in May, anticipating a significant decline in inflation over the course of 2024. Nearly half of the surveyed economists suggest that the Bank will commence easing monetary policy in May, with a subsequent third predicting the first cut in June. Despite initial market expectations for rate cuts in March, unexpected inflation spikes and comments from the Monetary Policy Committee members have pushed back these projections. However, a dovish stance from policymakers indicates a forthcoming reduction in interest rates, given the recent downward trend in inflation.

Furthermore, the Bank's November forecasts underestimated the decline in inflation, which ended the year at four per cent, contrary to predictions. Other economic indicators, such as wage growth and services inflation, have also shown more progress than initially forecasted. While inflation is expected to experience a slight uptick in January, projections suggest a return to the two per cent target in the second quarter of the year, aided by a significant drop in energy prices. However, there remains debate among economists regarding the sustainability of inflation at the target level, with divergent views on whether it will persistently remain at or below the Bank's estimates.

Source: City A.M.