Investors and traders are adjusting their expectations for rate cuts by central banks, particularly the Bank of England, based on recent inflation data. While overall CPI rates have reached 2%, services inflation remains high, leading to reduced probabilities of rate cuts in the near term. Market expectations vary for rate cuts in August, September, and beyond, with some uncertainty surrounding the timing and extent of potential cuts.
Traders pared bets that the Bank of England will ease monetary policy in the coming months after data showed services sector inflation remained higher than expected in May https://t.co/J4rCzTg47T
UK inflation 2pc, services inflation still sticking around
UK services inflation has once again come in higher than expected. But some of this is down to noise and we’re still looking for a first rate cut in August https://t.co/sLzr1SfEMh
Inflation back to target but markets do not expect a rate cut 'til autumn. Services prices still rising 5.7% - precisely the sort of sticky domestic inflation the Bank feared. Market expectations of a cut: Tomorrow 5.34%, down from 10.59% Aug 34.5% (42.2%) Sept 75.2%(79.6%)
Note of caution re today’s inflation figs. While overall CPI rate is back to 2%, services inflation is still 5.7%: ABOVE economists (5.5%) and BoE (5.3%) forecasts. Upshot is actually markets have slightly REDUCED the prob of an Aug cut. Look: the implied rate for Aug just ROSE👇 https://t.co/1pWYUqksch
Traders are adjusting their expectations for a Bank of England rate cut following the release of UK CPI data. They are now forecasting a reduction of 39 basis points in 2024.
GBP OIS reprices marginally in a hawkish direction since the CPI print - now seeing a 36% chance of an Aug cut (vs 52% yday), 1st cut still fully priced for Nov, pricing 42.3bp of easing by year-end (vs. 46.3bp yday)
UK Inflation Sorry to be a debbie downer Yes headline inflation is back to 2% (as exp) but services inflation has surprised to the upside coming in 5.7% vs 5.5% est As long as service inflation stays sticky, will be difficult for the MPC to justify meaningful dovish shift
September rate cut back on the table? Still a lot of data to come over the summer. But FWIW, fed funds futures now pricing in nearly 70% probability of September easing. Up from around 61% odds as of yesterday. https://t.co/Tc460KuDJF
Investors expect 47bps of rate cuts over the next six months. However, back in early-Feb when inflation expectations were at similar levels, the 6m forward expectation was for 67bps of cuts. Repricing is a risk here... expect some rumblings for three rate cuts in 2024. https://t.co/Xx1cLb8PfA