Traders anticipate that the Bank of England will make only one interest rate cut this year, following inflation rates that decreased less than expected.
Money market data suggest that the Bank of England might delay reducing borrowing costs until as late as November.
Currently, traders are factoring in just a single rate cut for the year, a significant shift from earlier in 2024, when they expected as many as five cuts.
Earlier in the week, derivative trading suggested an initial rate cut by September, with at least three cuts expected this year just a few weeks prior.
This adjustment in expectations follows a report from the Office for National Statistics that inflation dropped to 3.2% in March, the lowest in two and a half years but still above the anticipated fall from 3.4% to 3.1%.
Additionally, services inflation, which is particularly monitored by the Bank of England, decreased only slightly from 6.1% to 6.0% in March, exceeding analysts’ expectations of a drop to 5.8%.
Inflation is expected to decrease significantly next month as the effects of the reduced Ofgem price cap begin to appear in the data.
Bank of England Governor Andrew Bailey indicated on Tuesday that interest rates are likely to drop in the upcoming months, although economists caution that inflation risks persist.
Yael Selfin, chief economist at KPMG UK, commented, “The inflation outlook remains generally positive, but several factors could potentially derail progress. Notably, oil prices have climbed in the past month, leading to higher fuel costs for consumers.
Additionally, the increase in the National Living Wage might keep services inflation, which is already high, from falling.”
Ruth Gregory, deputy chief UK economist at Capital Economics, mentioned, “The likelihood of an interest rate cut in June has now slightly diminished.”
