As with the US Federal Reserve, the Bank of England (BoE) is preparing for its next Monetary Policy Committee (MPC) meeting. It intends to adjust its inflation and growth forecast for 2025 in this key annual session. Swap markets are electric with excitement. They see much larger interest rate cuts on the horizon with an average of 90 basis points of cuts predicted only for the remainder of 2023. Here the BoE starts to admit that it will indeed be difficult to comply with these dovish expectations.
As Mr. ile, the MPC will want to err on the side of keeping future flexibility for its monetary policy call. The market is sending a very strong signal about wanting to cut rates. The central bank believes living up to these expectations will be difficult. It seeks to chart a course through economic uncertainties. By refusing to commit to a concrete path, it retains its wiggle room to react as conditions evolve.
Considering the UK economy’s relatively low current exposure to US tariffs, even allowing for changes in global trade dynamics. This strategic positioning should offer a degree of protection from the negative impact that is sure to come with escalated trade tensions. Additionally, should a Labour government take power, closer ties with the European Union could further benefit the UK economy, presenting new opportunities for growth and collaboration.
The MPC will be keen to warn that US tariffs will inevitably have a negative impact on UK economic growth. Finally, the committee will note that these tariffs may mitigate upward price pressures, which could help lower inflation. For this reason, this context provides the perfect backdrop for all those downward revisions we’re expecting in both inflation and growth forecasts.