BoE expected to cut rates to 3.50% in March – Reuters poll
A Reuters poll conducted on February 10-16 revealed that economists are eyeing a 25-basis-point rate cut by the Bank of England (BoE) at its next meeting in March.
Majority of economists expect the Bank of England to trim rates in March as inflation trends toward target
The survey polled 63 economists, and 41 project the BoE will reduce the Bank Rate to 3.50% on March 19.
Sanjay Raja, chief UK economist at Deutsche Bank, said, “We stick to our call for the next Bank Rate cut to come in March and a final rate cut to come in June, taking Bank Rate to 3.25%, broadly consistent with our estimate of neutral.”
Of the rest, 19 economists expect the BoE’s first move in April, aligned with the BoE’s Monetary Policy Review this month. One predicts a cut in June, one is undecided whether the UK central bank would move in April or June, and another expects rates to remain unchanged at 3.75%.
For the rest of the year, analysts were split on whether a second cut will come in the second quarter or later this year. The median forecasts see the Bank Rate ending at 3.25% this year.
BoE CPI projection
In the February Monetary Policy Report, policymakers expect inflation to hit 2.1%. The Bank expects the CPI to fall closer to its 2% goal in April or May, due to one-off factors from regulated prices and the November budget.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
