Traders are increasing their bets on the Bank of England cutting interest rates this summer, driven by optimism that the US Federal Reserve is set to lower borrowing costs in America.
Money markets suggest there is now more than a 50% chance that UK policymakers will cut rates next week, with a 92% likelihood of a rate cut by September.
This surge in bets on a summer rate cut, up from a 45% chance on Wednesday, follows indications that a US rate cut is becoming more likely.
Recent data showed an unexpected 6.6% drop in consumer spending on durable goods, such as cars and washing machines, despite predictions of a 0.3% increase.
These figures have strengthened expectations for the Federal Reserve to cut interest rates by September, which is now fully priced in by money markets.
Confidence in rate cuts persists even though official figures showed the US economy grew faster than expected in the second quarter, with GDP increasing by 2.8% compared to the forecasted 2%.
Stephen Brown, deputy chief North America economist at Capital Economics, commented, “The sharper-than-expected pick-up in second-quarter GDP growth to 2.8% annualized should make the Fed a bit more comfortable about keeping policy unchanged next week, but the recent loosening of labour market conditions and signs of slower price growth still means that there is a strong case for a cut at the following meeting in September.”
