BoE to hold rates steady this week but could signal summer cut
Data flow out of the UK economy has been weaker of late, which may pressure the Bank of England into lowering interest rates sooner than they had perhaps intended.
The labour market report for May last week showed clear signs of softening, experiencing the largest net loss of jobs since the pandemic and a sharp increase in jobless claims. The April monthly GDP report was also weaker than expected, with Britain’s economy contracting by 0.3% MoM. This effectively confirms suspicions that growth will slow markedly in Q2, as businesses and households both grapple with higher costs.
Against this backdrop, the Bank of England is expected to hold rates steady this week, but absent a strong inflation report the MPC may well signal that the next cut could come in the summer. This may come in the form of a tweak to the bank’s hawkish bias, or in the voting pattern, with the possibility that two or three officials vote for an immediate cut on Thursday.
Weak data and the geopolitical conflict proved a bad combination for sterling last week, which gave back some of its gains from its recent scorching run.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
