From Morningstar: 2024-05-03 06:14:00

The Bank of England will announce its interest rate decision on May 9, with the expectation that rates will remain at 5.25%. Investors are eager for clues on when rates may start to fall, inflation projections, and the Bank’s willingness to rule out rate increases. The weak economy and falling inflation provide a backdrop for potential rate cuts.

The Bank of England is facing pressure to align its monetary policy with global trends, as the Fed and ECB consider rate changes. While UK inflation is lower than in the US, economic weakness may necessitate monetary easing. The Bank may not rush to cut rates, but market pricing hints at a possible reduction in August, with a long-term rate forecast of 3.75%.

UK mortgage rates have risen, disappointing homeowners, while bond yields are starting to increase, pointing to a “higher for longer” interest rate narrative. A Bank rate cut could reverse this trend and boost sentiment, particularly affecting businesses and consumers seeking cheaper borrowing costs. Currency movements are also key, with the pound weakening against the dollar in 2024.

Consumers may see lower savings rates and cheaper debt if interest rates are cut, impacting both savings and debt management. Equities are expected to benefit more from rate cuts than bonds, which may see increased demand and higher prices, especially for bonds issued during periods of interest rate hikes. Pension funds could also benefit from a looser monetary policy.

The real economy stands to benefit from potential rate cuts, with businesses expected to see relief from supply chain inflation and increased consumer spending. While higher interest rates can curb spending, lower rates may stimulate economic growth. The timing and impact of any rate cuts are uncertain, but implications for businesses and consumers remain a key consideration.



Read more at Morningstar: Bank of England Rates Decision: What to Expect on May 9