Traders Enhance UK Rate-Cut Bets After BOE Delivers Expected Quarter-Point Reduction
Traders have increased their bets on additional UK interest rate cuts by the Bank of England (BOE) in 2023. This comes after policymakers lowered borrowing costs by a quarter point as anticipated, with two members advocating for a more significant reduction.
Money markets now predict 67 basis points of further BOE cuts by December, up from 60 basis points before the meeting. UK bonds initially experienced a rally, with the yield on 10-year notes declining up to six basis points to 4.38%. However, the pound fell over 1% to $1.2361.
Despite policymakers conveying a hawkish stance by indicating the need for only two additional cuts to meet the inflation target, markets emphasized the unanimous vote for easing among the nine-member Monetary Policy Committee (MPC). Notably, Catherine Mann, previously advocating for a half-point reduction, voted for a cut for the first time.
"The vote by two MPC members to deliver a 50 basis-point cut, despite raising near-term inflation forecasts, illustrates the growing concern among policymakers about the challenges to economic growth," remarked Luke Bartholomew, Deputy Chief Economist at abrdn.
"The Bank's signals today suggest room for several more rate cuts this year, given the weak growth outlook. We anticipate rates to remain below 3% over the next two years," he added.