Economists are revising their predictions regarding the Bank of England’s (BoE) interest rate cuts in light of recent developments indicating a slower decline in UK inflation. While the market had initially anticipated multiple cuts, the timing has shifted due to factors such as wage growth and consumer price index data exceeding expectations.
Pantheon Macroeconomics’ Rob Wood still suggests a potential cut in June, but acknowledges that the risks are tilting towards the MPC waiting until August. Wood emphasizes the likelihood of CPI inflation falling below the BoE’s 2% target this year, citing factors such as an upcoming energy price cap reduction by Ofgem.
Deutsche Bank economist Sanjay Raja, while retracting his earlier prediction of a May cut, now anticipates the first rate cut in June, followed by two more cuts later in the year. Similarly, Jefferies economist Modupe Adegbembo sees an August cut as the base case, with gradual rate reductions totaling 75 basis points by the end of 2024. 
Wells Fargo economists caution that a slower pace of disinflation and signs of economic recovery could make BoE policymakers hesitant to lower rates prematurely. They now forecast an initial rate cut in August, followed by two more cuts by the end of the year, projecting a policy rate of 4.50% by 2024-end and further cuts in 2025.
These revised forecasts could impact shorter-term UK bond yields and lead to relative underperformance of the pound against other currencies. Despite the adjustments, economists remain cognizant of the potential for asymmetric risks in a changing economic landscape.
