The Notebook: When will the Bank of England begin cutting interest rates?
Where the City’s experts have their say. Today, it’s Victoria Scholar from Interactive Investor
When will the Bank of England begin cutting interest rates?
The Bank of England’s chief economist Huw Pill dampened hopes of a near-term rate cut. On Friday he warned that the first cut is still “some way off”. Pill argued the monetary policy committee “will need to maintain a degree of restrictiveness in its monetary policy stance”, adding that he needs to see ‘”more compelling evidence” to suggest that inflation is coming down.
Similarly, several analyst teams have been pushing back their forecasts for the initial cut to the Bank of England’s base rate.
Barclays is now expecting June, delayed from its previous forecast for May. Citigroup is even less optimistic, suggesting that its previous window for the first cut between May and August is now more likely to hit the back half of that range. However Morgan Stanley’s base case remains that the first cut will begin in May, but it acknowledges the risk that it might be later. This analyst team is concerned that a later move will lead to more aggressive cuts, rather than a more optimal, gradual approach.
Markets were very excited in the final stretch of 2023 about the prospect of looser monetary policy, with the FTSE 100 and FTSE 250 staging impressive gains between the October lows and the turn of the year. Housebuilder stocks in particular enjoyed impressive upside. However that exuberance has tapered off so far in 2024, with Barratt Developments for example nursing a painful near 15 per cent slide since the beginning of January.
Mortgage rates were on their way down in January, fuelled by the rally in bond markets at the end of 2023 with hopes of easing inflation and loosening monetary policy. But February has seen mortgage rates from the likes of HSBC, Santander, Natwest and Nationwide tick up once again, as markets have come to realise the Bank of England is in no rush to carry out the first cut.
A star studded pre-wedding bash
There was a star studded line up at a pre-wedding party hosted by Asia’s richest man. Mark Zuckerberg, Rihanna and Bill Gates were among the rich and famous attending the three day gala organised by billionaire Mukesh Ambani for his son Anant Ambani who is due to marry Radhika Merchant in July. Mukesh Ambani is in charge of Reliance, an Indian multinational conglomerate spanning energy, retail, telecoms, media and more. According to Forbes, he is estimated to be worth around $117bn, or £92bn, which makes him the ninth richest person on the planet.
Bitcoin rally
Bitcoin is on a tear, breaking above $69,000 to an all-time high. The cryptocurrency has rallied nearly 200 per cent over the past 12 months and is up by more than 50 per cent over the past month alone. The approval of US listed bitcoin ETFs in January has been spurring the gains with these funds enjoying more than $7bn of inflows, helping to improve liquidity and legitimacy to the volatile and risky asset class. It is important to remember though, that major gains one month can quickly shift to heavy losses the next.
Tokyo drifting up
The Nikkei 225 has pushed above the key 40,000 resistance level this week, hitting fresh record highs. It is the world’s top performing stock index so far in 2024, rallying around 20 per cent since the beginning of January. While in the UK, Europe, US and elsewhere, central banks have been scrambling to curtail inflation by raising interest rates, Japan has stuck to its ultra loose monetary policy. But even the Bank of Japan is expected to start lifting interest rates at some point this year after almost ten years of below zero rates.
Quote of the day
Unless policy makers intervene, the 2020s are set to see an unprecedented second lost decade of living standards in a row.
JRF’s chief economist, Alfie Stirling
A podcast for those starting out in investing
With the clock ticking towards tax year end many people will be mulling their investment decisions to make the most of the £20,000 ISA allowance. For those dipping their toes into the stock market for the first time and don’t know where to start, a four-part bonus podcast series from my colleague Kyle Caldwell is well worth checking out. Kyle, who hosts interactive investor’s On The Money podcast, has teamed up with investor Algy Smith-Maxwell, to run through everything investors need to know about funds. Topics include how to build a fund portfolio, how to sort the wheat from the chaff when it comes to active funds and when to call time on a fund by hitting the sell button.