- A month ago, just one or two more rate cuts were predicted for 2025
Investors have ramped-up bets on Bank of England interest rate cuts amid growing fears the outbreak of a trade war will weigh heavily on economic growth.
Signs of resurgent inflationary pressures had stifled expectations for further cuts this year as investors bet the bank would keep base rate high in efforts to tame price growth.
Just a month ago, markets had expected just one or potentially two more cuts this year of 25 basis points each, which would have taken base rate from its current level of 4.5 per cent to 4.25 or 4 per cent by year-end.
But markets were pricing in almost four cuts by the end of 2025 on Wednesday after US President Donald Trump’s 104 per cent tariffs on China took effect.
Interest rate futures pointed to about 95 basis points of reductions to the BoE’s benchmark bank rate by December, compared with around 78 bps on Tuesday as financial markets braced for a hit to economic growth.
Three cuts of 25bps each this year would take base rate to 3.75 per cent, while four would take it to 3.5 per cent.
Bank of England Governor Andrew Bailey has warned tariffs will have a ‘substantial’ impact on the UK and global economies
AXA Investment Management earlier this week said it expects the bank to pull the trigger on rate cuts at its May, August and November Monetary Policy Committee meetings – ‘despite rising inflation pressures’.
The consumer price index was at 3 and 2.8 per cent in January and February, respectively, well above the bank’s target of 2 per cent.
The BoE says inflation is likely to reach 3.7 per cent this year, partly as a result of higher energy prices and increases in some regulated prices such as water bills.
And it comes just as employers are hit with higher labour costs resulting from Rachel Reeves’ Budget in the autumn.
But markets are increasingly confident that the bank will have to prioritise economic growth as the trade war hammers global activity.
UK GDP shrank by 0.1 per cent at the start of the year and the OECD recently cut its UK forecast for 2025 from 1.7 per cent to 1.4 per cent growth.
And the Office for Budget Responsibility has said trade tariffs could result in a hit to output ranging from 0.2 to 0.6 per cent.
BoE Governor Andrew Bailey has warned tariffs will have a ‘substantial’ impact on the UK and global economies.
The BoE will be informed on fresh GDP and CPI data on 11 and 16 April, respectively.
Richard Hunter, head of markets at Interactive Investor highlighted falling oil prices, with Brent Crude down around 20 per cent since the start of the year at around $61 per barrel.
He said: ‘The weakness of the oil price… could lead to less inflationary pressure which may at least open the door for potential interest rate cuts from the Bank of England over the coming months.’
City forecasters in March expected inflation to average as much as 3.5% this year
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This article was originally published by a www.dailymail.co.uk . Read the Original article here. .