City traders say the chance that the Bank of England will cut the base rate tomorrow have surged to 60 percent.
This represents a sharp increase on the 40 percent figure of just a few weeks ago.
A cut would be huge for home buyers, borrowers and credit card customers and mortgage brokers predict it would kick-start the property market through the second half of the year.
City experts are factoring in a quarter-point cut in the base rate of 5.25 percent, which is currently at a 16-year high.
According to a Reuters poll, more than 80 percent of economists (49 out of 60) anticipate the BoE will implement a rate cut.
Analysts at Nomura said: “The Bank of England faces a tough decision. But we think it will deliver the first cut of the cycle.”
Any reduction in borrowing costs will boost a feel-good feeling that has been driven by falling inflation and rises in wages.
To date, experts on the Bank’s Monetary Policy Committee (MPC) have held back cutting rates amid concerns that they could fuel a return of inflation.
This caution has been driven by continuing high prices and wage increases in the service sector, such as restaurants and hotels. At the same time, a rise in energy bills due in October could also drive up inflation.
Benjamin Jones, director of macro research, Invesco, said: “The UK inflation picture today is better than many other developed markets giving the Bank of England an excuse to cut on 1 August. If it doesn’t, it may find that inflation data make it hard to justify a rate cut later in 2024.”
Ranjiv Mann, a portfolio manager at Allianz Global Investors, who is expecting a rate cut, said: “Market expectations for a rate cut have been ticking up.
“I think it’s a disinflation narrative… there’s been underwhelming data from Europe and that has tipped the balance in favour of a BoE rate cut this week.”
Guy Stear, head of developed markets strategy at Amundi Investment Institute, told the FT: “We think the UK needs easier rates because the growth outlook is soft.”
Sree Kochugovindan, economist at Abrdn, said: “We are steering towards a cut — there is enough just to tip it over in terms of the labour market dynamics.”
John Pattullo, co-head of global bonds at Janus Henderson, said: “Current rates are restrictive and will need to fall as inflation has already fallen significantly.”
