Anna 
The Bank of England (BoE) is poised to maintain its policy rate at 5.25% for the sixth consecutive meeting on Thursday, in response to ongoing disinflationary trends in the UK and shifts in investor expectations regarding interest rate cuts.
The decision, expected at 11:00 GMT, will be accompanied by the release of the Monetary Policy Minutes and the Monetary Policy Report, followed by a press conference led by Governor Andrew Bailey.
Initially anticipated to lag behind the Federal Reserve (Fed) and the European Central Bank (ECB) in monetary easing, the Bank of England now appears more inclined to start lowering interest rates earlier than previously thought due to mounting disinflationary pressures.
Investors are increasingly pricing in a rate cut from the Bank of England, potentially as early as August or September, with a probability of around 70% for a subsequent decrease in December.
In March, disinflationary trends in the UK intensified, with the headline Consumer Price Index (CPI) rising by 3.2% (down from 3.4%) and the core CPI, excluding food and energy costs, increasing by 4.2% (down from 4.5%).
Governor Andrew Bailey, speaking at an event hosted by the Institute of International Finance, indicated that upcoming inflation data is expected to show a significant decline, and he hinted at potential labor market loosening.
Recent data from the BoE’s Decision Maker Panel survey (DMP) conducted between March 8 and 22 revealed that one-year ahead CPI inflation expectations dropped to 3.2%, down from 3.3% in February. Three-year-ahead CPI inflation expectations also decreased to 2.7% over the same period. Expected year-ahead wage growth declined to 4.9%, leading firms to anticipate a 1.5 percentage point decrease in wage growth over the next 12 months.
At the BoE’s March meeting, Governor Bailey acknowledged financial market expectations of interest rate cuts, citing optimism regarding inflation trends and suggesting the possibility of two or three rate reductions this year.
Looking ahead to the BoE’s meeting, analysts from TD Securities expect the bank to maintain its stance in May due to relatively stable wage and inflation data. Danske Bank strategists anticipate a similar outcome, suggesting a softening of communication from the BoE to prepare markets for an upcoming rate cutting cycle, with the first rate cut potentially in June.
