Bank of England: Even if inflation falls, more British people still predict a rate hike rather than a rate cut
The Bank of England released a survey showing that despite UK inflation expectations falling to 2.8%, more British people predict an increase in interest rates rather than a decrease. About one-third of respondents expect borrowing costs to rise in the next 12 months. Furthermore, recent data indicates that the UK unemployment rate has risen to a two-year high, suggesting that the labor market is gradually loosening. The Governor of the Bank of England and other officials expect to keep interest rates unchanged, with investors reducing their bets on the extent of rate cuts
According to Zhitong Finance APP, although the UK inflation expectations have dropped to 2.8%, the lowest since August 2021, the public is not yet convinced that a rate cut is underway. A survey by the Bank of England shows that there are still more people in the UK predicting an increase in interest rates over the next 12 months than those predicting a decrease. About one-third of respondents expect borrowing costs to rise in the next 12 months, a proportion lower than the 36% in February, while the percentage of respondents expecting a decrease has risen from 26% to 27%.
The disconnect between the interest rate path and the level of prices indicates that the message from the Bank of England about easing borrowing costs from the 2016 high has not been deeply ingrained.
The Bank of England closely monitors inflation expectations to find evidence of sustained wage and price pressures. Policymakers had previously indicated a possible rate cut as early as this summer. Some economists believe that in the May data to be released next week, inflation will fall back to the Bank of England's target of 2% for the first time in three years.
The next day, due to the strong stickiness of inflation in the UK service sector and the effective stifling of potential plans for an early rate cut by the general election on July 4th, Bank of England Governor Andrew Bailey and other central bank officials are expected to keep interest rates unchanged.
Investors have reduced their bets on the size of a rate cut by the Bank of England. The current pricing in the money markets is for a rate cut of about twice this year, with a further 25 basis point cut to 4.5% by May 2024.
Recent data shows that the UK labor market is gradually loosening, adding the possibility of a slowdown in inflation pressure. The UK unemployment rate has risen to a two-year high, countering the wage upward pressure brought by the increase in the minimum wage. Meanwhile, the UK economy slowed in April, with signs that high interest rates and the cost of living crisis continue to drag on UK economic output.
