London, United Kingdom. Economists polled by Reuters now expect the Bank of England to cut interest rates to 3.50% in either April or June, after rising energy prices linked to the Iran war increased inflation risks. Most have dropped expectations for a March 19 rate cut.
March decision expectations shift
More than 85% of economists, 43 of 50, expect the BoE to keep Bank Rate unchanged at 3.75% on March 19, reversing a February poll in which 65% had expected a March cut. Seven economists forecast a cut to 3.50% at the March meeting.
Uncertainty grows over the path of cuts
Conviction in the outlook has weakened, with several economists unwilling to specify whether a cut will come in April or June. Some economists delayed expectations for a series of cuts, while others removed expectations for any further easing.
There is no longer a majority view on where rates will end the year, although the median forecast in the poll still puts Bank Rate at 3.25% by year-end.
Markets reprice as bond yields rise
Benchmark British government bond yields have risen by about half a percentage point since the war began. Interest rate futures contracts are no longer pricing any cuts this year, compared with a 90% chance of a March reduction less than two weeks ago.
Inflation outlook affected by oil prices
The conflict has changed near-term expectations for inflation, which slowed to 3.0% in January and had been expected to move toward the BoE’s 2% target in the coming months. Brent crude oil is back above $100 after nearly touching $120 earlier in the week.
Next-quarter cut favored, with April watched
About 60% of economists, 26 of 43, expect the first cut this year to come next quarter. Among those, around 40% specified April’s meeting, when the BoE releases its next set of quarterly forecasts.
In the February poll, all but one economist expected Bank Rate to fall by at least 25 basis points by mid-year.
Economist commentary
“Given the situation we’re seeing with oil prices, we now think it’s more likely than not they will delay the next rate cut until April, but overall, we’re still looking for two cuts from the Bank of England this year,” said Dean Turner, an economist at UBS.
“I suspect the bias in the minutes will still point to the need for further easing in due course…I don’t think there’s any doubt rates are going to fall, it’s just by how much and when.”
How do you expect higher energy prices to affect the timing of the Bank of England’s next rate cut?