A slower decline in UK inflation than many hoped has pushed back the market's predictions of when the Bank of England will begin cutting interest rates, though several economists still expect three cuts to be made this year.
After wage growth and consumer price index data this week both came in slightly hotter than forecast, interest rate futures are now pricing in one interest rate cut by the BoE's monetary policy committee (MPC), possibly two, with the first coming in either August or September.
Pantheon Macroeconomics' Rob Wood is one economist still calling for a June cut but he said: "the risks are increasingly shifting to the MPC opting to wait until August".
He said it remains likely that the headline rate of CPI inflation will fall below the BoE's 2% inflation target this year, with Ofgem due to cut the energy price cap by 12% in April, while food CPI inflation heading lower based on weaker producer output price inflation.
But today CPI surprise means "we will likely have to wait until May for that first sub-2% reading, compared to April before".
Deutsche Bank economist Sanjay Raja today stepped back from his long-held production of a May cut, but still predicted June will bring the first of three rate cuts this year.
"We now shift the starting date for rate cuts to June," Raja said, adding that he still sees the BoE's delivering three quarter point rate cuts this year (June, Sep, Dec) to leave the base rate at 4.5% in December.
He also now expects only four rate cuts in 2025, down from six, taking the base rate to 3.5% and another two in 2026 taking the terminal rate to 3%.
Likewise, Jefferies economist Modupe Adegbembo said the market's BoE predictions seemed to have been shifted by expectations of a later US Federal Reserve easing.
But he said a later Fed cuts "should not alter BoE calculus", with an August cut remaining his base case, acknowledging that recent data has reduced the risk that this move could come earlier in June.
He thinks the BoE will cut rates steadily, penciling in a total of 75 basis points of hikes across this year leaving Bank Rate at 4.50% by the end of 2024, compared to markets now pricing 40bps of cuts across 2024.
Similarly, Wells Fargo economists note that "A slower pace of disinflation could make BoE policymakers cautious about lowering interest rates prematurely, while signs of economic recovery arguably reduce the urgency for monetary easing," said
"Against this backdrop, we now forecast later easing than previously from the BoE," they wrote, while forecasting an initial policy rate cut to 5.00% at the August monetary policy meeting, followed by 25 basis point cuts in November and December, which would see the policy interest rate end 2024 at 4.50%.
The Wells Fargo team predicts a further cumulative 125 basis points ps of BoE policy rate cuts next year, which would see the central bank's policy rate end 2025 at 3.25%.
Based on that prediction they see more easing than the wider market, which is forecasting at least one and maybe two 25bps cuts in 2024.
The Wells Fargo economists note that their forecasts "could contribute to downward pressure on shorter-term UK bond yields, and see the pound underperform relative to many other G10 currencies over time."
Meanwhile, Deutsche Bank's economists have retreated from their long-held May rate cut.
"We now shift the starting date for rate cuts to June," they said, adding that they "still see the MPC delivering three quarter point rate cuts this year (June, Sep, Dec).
"But we now expect the MPC to deliver only four rate cuts next year (Feb, May, Aug, Nov), sticking to a quarterly pace through 2025 (previously, we saw six rate cuts in 2025). We expect two further rate cuts in H1-26 taking the terminal rate to 3%."
They acknowledged that the risks are skewed to a slower start (ie later than June) and higher terminal rate, "but asymmetric risks will likely build in a higher for longer world".