With the Bank of England due to make a decision on rates on Thursday this week, market data analytics business LSEG believes that investment markets are pricing in on a 60% chance of a rate cut now, with more confidence of a rate cut by September and an expectation of two cuts by the end of the year.
Predictions based purely on market prices can be wrong, but it does seem to accord with popular opinion. The Fed will also meet to decide on rates on 31st July, a day ahead of the Bank of England.
A rate cut will be welcomed by many, although it is unlikely to make an immediate material difference to mortgage borrowers, many of whom will still be moving from old, cheap fixed rates to much higher monthly costs as their fixed rate expires.
Chancellor Rachel Reeves will be particularly pleased as it will give her some future headroom for public spending and should help stimulate economic growth. However its key significance may be largely symbolic at this stage as it heralds a gradual return to normalcy, especially if it is accompanied by more positive forecasts for growth in future Monetary Policy Reports. The Bank has been decidedly gloomy on it’s growth forecasts in recent years and it is unlikely it will change dramatically in the very near future, but the new Chancellor will know that she can’t blame her predecessors indefinitely and some upturn in expectations will eventually need to come through.