Despite last month’s higher-than-expected inflation rates, major investment banks, including Wall Street’s Goldman Sachs and Paris-based BNP Paribas, forecast that the Bank of England will begin to reduce borrowing costs this summer.
This prediction follows the consumer prices index falling to its lowest level in nearly three years, from 3.2% to 2.3% in April, driven by a significant drop in energy prices.
However, the markets were unsettled by the less-than-anticipated decrease in services inflation, which only fell slightly from 6% to 5.9%. This metric is particularly significant to the Bank of England.
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Consequently, traders have adjusted their expectations for interest rate reductions, shifting from as early as June to potentially as late as November, with only one cut anticipated this year.
Originally, both Goldman Sachs and BNP Paribas had anticipated the initial reduction in June, but they have now adjusted this forecast to August.
According to Goldman analyst Sven Jari Stehn, this delay will allow for two additional rounds of inflation and labour market data, which they believe will demonstrate progress on inflation.
