As the UK economy faces uncertainty due to inflation and recession, investors have been closely monitoring the actions of the Bank of England (BOE) to anticipate potential rate cuts. The BOE recently announced it would keep its main interest rate at a 16-year high but hinted at a possible cut in the near future as UK inflation cools and the country looks to exit recession.
Market analysis shows that there is around a 48% chance of a rate cut in June, with economists shifting their predictions from August to June for the first rate cut. The BOE’s forward guidance, inflation expectations, and comments from Governor Andrew Bailey have influenced these revised expectations. Swiss Bank UBS now expects multiple rate cuts in June, August, and November.
In addition to the BOE’s interest rate decision, recent GDP data revealed that the UK economy grew more than expected in the first quarter of 2024. This growth of 0.6% exceeded the 0.4% estimate and marked the first time since 2021 that GDP growth exceeded 0.5%, signaling an exit from the recent recession.
Investors and analysts are now closely monitoring inflationary pressures and the resilience of the economy to higher interest rates. While the BOE acknowledges persistent inflation, it expects inflation to approach the 2% target in the near future. Analysts predict that the BOE may wait until August before implementing rate cuts to address inflation concerns.
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