Markets: BoE base rate expected to be 4.25% by 2025

Macro Commentary

The Bank of England kept policy on hold with a 6-2-1 split vote, and revised their forecasts for growth marginally higher, but said inflation risks remain to the upside.

The market is now forecasting the Bank will make an initial rate cut in June and drop rates to around 4.25% by year-end. This of course will be data-dependent, with underlying inflationary pressures still evident and the jobs market still relatively robust. The Bank estimates a third of tightening to date has yet to impact the economy, whilst the budget in March only adds to the uncertainty.

The US central bank also held policy steady and pushed back on market expectations of an initial rate cut in March, as the economy remains fundamentally strong. The market is still forecasting up to 1.40% of cumulative cuts this year.

In Europe meanwhile, the authorities are also expected to be more aggressive than the UK, and begin cutting earlier, with inflation dropping significantly and the growth outlook looking particularly challenging. Up to 1.45% of rate cuts are currently being priced in for the year.

Rising geopolitical tensions continue to drive market sentiment on increasing fears of a wider escalation of the conflict.

On the exchanges, a rather muted reaction to the central bank meetings, with Euro weakness an ongoing theme, keeping GBP/EUR near its recent highs above the 1.1700 level.

GBP/USD – 1-year chart

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*Bloomberg survey / Not available

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