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Bank of England expected to hold rates this week - but March cut looks likely, says ING - THIS IS MONEY
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The Bank of England is widely expected to hold interest rates on Thursday, but policymakers could be eyeing its first cut of the year as early as next month.
The market is expecting the central bank to hold the base rate at 3.75 per cent after a 25 percentage point cut in December.
The Monetary Policy Committee has guided to a 'gradual downward path' for base rate, with the market pricing in just one or two cuts this year.
The labour market is showing signs of cooling while wage growth is slowing, and while inflation unexpectedly picked up in December, this was largely due to one-off factors.
However, the last MPC meeting was a close call, with four out of nine members opting to keep rates on hold, suggesting fears over inflation remain.
Pantheon Macroeconomics expects the central bank to reiterate its previous guidance that while a cut is likely, 'the rate cycle is probably close to an end.'
There is a possible, but unlikely, chance that policymakers could throw caution to the wind and opt for another cut in March, though.
'There are good reasons to think the Bank's work isn't done yet,' say analysts, who expect the bank to cut the base rate next month, 'or at the very least, the probability is higher than the 20 per cent markets currently assign.'
While the MPC is unlikely to change its guidance significantly, by March there will have been another two rounds of jobs and inflation data.
'If recent trends continue, we think the Bank will have enough confidence to cut rates further,' said ING.
'The committee is heavily divided, so it only takes one or two officials to change their view to dramatically change the path of interest rates.'
Oxford Economics predicts an April cut, 'by that time, the MPC will be able to assess how the new year pay deals are materialising.
'After that we expect the MPC's desire to move cautiously will see it only cut once more this year, in November.'
Pantheon expects just one more rate cut this year 'with a chance of hikes starting early in 2027'.
The market suggests that a cut isn't likely until April though, as the Government's energy price subsidy will begin and inflation should start to fall again.
