Danske Research Team
Danske Bank A/S
-
On the back of continued strong inflationary pressures in the service sector, as evident in the April inflation print, we revise our BoE call. We now expect the first 25bp cut in August (prev. June).
-
We expect quarterly cuts from August and through 2025, leaving the Bank Rate at 3.75% by the end of 2025.
Inflation in April surprised significantly to the topside across the board, relative to both the consensus expectation and the BoE’s forecast from the May monetary policy report. Headline came in at 2.3% y/y (cons: 2.1%, BoE: 2.1%, prior: 3.2%,), core at 3.9% (cons: 3.6%, prior: 4.2%) and services a 5.9% y/y (cons: 5.4%, BoE: 5.5%, prior: 6.0%).
Although the year-on-year measures dropped notably due to base effects from energy prices and April-specific annual price adjustments (e.g rents, telephone contracts and tv licence fees), the underlying momentum remains strong. The big driver was services with a broad range of services such as hotels, restaurants and recreation and culture services delivering upward contributions. Service inflation remains key for the BoE as it uses it as a measure of inflation persistence alongside tightness of the labour market and wage growth. Worryingly, alongside the big BoE forecast miss, the momentum in service inflation picked up in April (see chart 1). Likewise, wage growth remains elevated with the labour market still tight by historical standards.
Following today’s topside surprise and the May print unlikely to deliver an equally large downside surprise to sway the majority of the MPC to vote for a cut, we now expect the first 25bp cut in August.
Our call. We now expect the BoE to deliver the first cut of 25bp in August (June previously). Given the later start to the cutting cycle, we subsequently now only expect one 25bp cut in the following quarter, totalling 50bp of cuts for 2024 (previously 75bp). Markets are pricing 40bp for the remainder of the year with the first 25bp cut fully priced by November.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
Gold nears $3,400; fresh record highs and counting amid USD sell-off
Gold price closes in on $3,400 as the record rally regains strength on Easter Monday. Concerns over US-China trade war escalation and the Fed’s independence smash the US Dollar to three-year troughs. RSI stays overbought on the daily chart, with thin volumes likely to exaggerate moves in Gold price.
EUR/USD extends rally toward 1.1600 as US Dollar keeps falling
EUR/USD trades roughly 1.5% higher so far this Monday as the relentless US Dollar selling drives it toward the 1.1600 threshold - the highest level since November 2021. Growing concerns over a US economic recession and the Federal Reserve’s autonomy continue to exert downward pressure on the USD.
GBP/USD surges past 1.3400 on intense US Dollar weakness
GBP/USD continues its winning streak, recapturing 1.3400 in European trading on Monday. The extended US Dollar weakness, amid US-Sino trade war-led recession fears and heightened threat to the Fed's independence, continue to underpin the pair. Thin trading is set to extend.
How to make sense of crypto recovery – Is it a buy or fakeout
Bitcoin (BTC), Ethereum (ETH) and XRP, the top three cryptocurrencies by market capitalization, extend their last week’s recovery on Monday, even as trader sentiment is hurt by the US President Donald Trump’s tariff policy and announcements.
Five fundamentals for the week: Traders confront the trade war, important surveys, key Fed speech Premium
Will the US strike a trade deal with Japan? That would be positive progress. However, recent developments are not that positive, and there's only one certainty: headlines will dominate markets. Fresh US economic data is also of interest.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.