Goldman Sachs economists said that against the background of the latest UK inflation data, which indicated the weakest consumer price growth since September 2021, they now expect the Bank of England to begin an interest rate cut cycle in May. Earlier, they predicted the beginning of monetary policy easing at the June meeting of the Central Bank. However, economists maintain the size of rate cut at 0.25% per meeting until the policy rate reaches 3% in May 2025.
Markets are currently fully pricing in a 25 basis point rate cut in June 2024 and indicate a greater than 50% chance of a cut in May. At its December meeting, the Bank of England maintained a hawkish tone as it kept its main interest rate unchanged at 5.25%. Central Bank policymakers reiterated that policy is “likely to need to be restrictive for an extended period of time.”
Meanwhile, U.K. Finance Minister Jeremy Hunt cheered today's inflation data and said the country was “starting to remove inflationary pressures from the economy.”
The Office for National Statistics said that in November consumer prices rose by 3.9% per year (the lowest value since September 2021) after increasing by 4.6% per year in October. Economists had expected inflation to slow to 4.4% per annum. Meanwhile, core CPI - which excludes energy, food, alcohol and tobacco - rose by 5.1% per annum (the lowest rate since January 2022) after an increase of 5.7% per annum in October. Consensus estimates suggested an increase by 5.6% per annum.