Investors told to manage expectations when it comes to interest rate cuts

With the Consumer Price Index (CPI) rate of inflation edging towards the Bank of England’s 2% target, most economists are predicting that interest rates will be cut this summer, in what would be a major win for homeowners and borrowers, but a senior Bank of England official is warning that far too many people had become far “too complacent”.

Bank of England rate-setter Catherine Mann, who voted to hold borrowing costs at 5.25% last week, said investors had become over optimistic about the prospect of falling interest rates, with no “substantial easing” insight.

Traders have priced in three interest rate cuts by the end of the year to take the base rate to 4.5%, which Andrew Bailey described last week as “reasonable”.

But in an apparent split with the governor, Mann told Bloomberg TV: “I think they’re pricing in too many cuts”.

She commented: “I think that perhaps markets are a bit too complacent about how long they think overall the Monetary Policy Committee will hold rates.”

Mann also suggested that the Bank of England would be unlikely to reduce borrowing costs before the US Federal Reserve or European Central Bank. The Monetary Policy Committee (MPC) member noted that “wage dynamics in the UK are stronger and more persistent” than in either the US or eurozone, while services prices are also “stickier”.

She added: “On that basis, it’s hard to argue that the Bank would be ahead of the other two regions, particularly the United States.”



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