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The Bank of England is expected to reduce another quarter of interest rates this week, as policies have been squeezing the signs of weakening of the British economy along with short -term pickups in inflation.
The financial market is betting that the BOE monetary policy committee will reduce the formal rate to 4.5 % on Thursday’s third reduction, which will cost more than six months.
However, this week’s MPC’s deliberations have been set to be complicated by the World Trade War after President Donald Trump imposed tariffs on Canada, Mexico, and China.
BoE is also working on the trust and investigation of the British business. The data suggests that the British economy probably could not grow in the last few months of 2024.
“Recent weaknesses of growth data, the deterioration of indicators in the labor market, and the gradual progress of the basic service inflation, which means that there is a wide range of support (quarterpoint) cut,” said saxophone.
The market has set a price reduction of about three times this year to navigate the wage pressure of the company alongside the stagnant economic evidence. Many economists support the downward movements in the MPC for 8-1 voting, and Catherineman is considered the most likely opponent.
Consumer prices increased 2.5 % a year in December. This is slower than expected, closer to the official 2 % goal, much lower than the two -digit level recorded in 2022.
Service inflation, which has been carefully monitored as a basic price pressure scale by BoE, has dropped sharply from the previous 5 % to 4.4 % in December.
However, the rise in energy prices may boost inflation in the next few months. Pantheon Macroeconomics analyst stated that BOE could predict more than 3 % of the annual CPI growth in the second quarter of 2025.
The decision to raise the employer’s national insurance contributions with the rapid increase in the minimum wage of Prime Minister Rachel Reeves has increased labor costs and is wary of BoE to increase prices inherited by consumers.
This is in parallel with evidence of weakening economy, and perhaps in the long term of growth and inflation. In December, BOE said that zero growth was expected in the last quarter of 2024 and was weaker in the November forecast round than 0.3 % expansion prediction.
Some economists expect BoE to predict 1.5 % of GDP growth this year.
According to Pantheon’s Rob Wood, the MPC needs to work on the potential “stag flavor shock”. “In all surveys, the growth is slow and inflation pressure increases, but the severity of movement is different.”
Reeves is waiting for an important prediction set from the office for the budget responsibility in March, among those who are carefully watching BOE’s decision and bond market reaction.
The sale in the guilt market in early January caused concerns about the headrooms for the main deficit rules (the current expenditure must be funded by taxation by 2029-30).
Last week, the European Central Bank reduced the benchmark rate by one quarter to 2.75 %, but the Canadian bank reduced the key rate by half by 3.25 %. In contrast, the US Federal Reserve has left a 4.25-4.50 % rate for forced forcians, including IMF, to exceed other G7 economy this year.
