Money markets have had a terrible 18-months of predicting most things, but do they have a point now on UK interest rates?
Before the UK inflation release, pricing had the UK cutting rates in August at 45% and 90% in September. That has now dropped to 30% & 80% respectively. But why?
Well for 2 reasons; firstly the headline inflation rate is not really the one that matters to the BoE. Yes it's great news and a relief to us all that inflation is down to the 2% target for the first time in nearly 3-years. But the more important core inflation figure is at 3.5% (down from 3.9%) and services inflation remains sticky at 5.7% (down from 5.9%). This is a problem.
Secondly, it's a risk if the UK moves too soon and much faster than the US. For these reasons (plus potentially the election) money markets believe the BoE will delay cutting rates. However, economists strongly disagree..
A Reuters poll published last week (before the drops in inflation) showed 63 out of 65 economists believe a 25bp rate cut will arrive in August. This is in line with the economists that we follow too. The reason, is looking at the positives on the inflation picture instead of the negative.
So, who do you think has called it right, as GBP will be affected either way?!
| On this day - |
In 1829, Robert Peel introduces the Metropolitan Police Act 1829 into Parliament to establish the first unified police force for London In 1862, slavery is outlawed in the US In 1944, US naval forces defeat the Japanese fleet in WWII In 1991, Colombian drug lord Pablo Escobar surrenders to police |
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