Bank of England cuts rates from 16-year high
Adds new comments, refreshes prices at 1120 GMT
LONDON, Aug 1 (Reuters) -The Bank of England cut interest rates from a 16-year high on Thursday after a narrow vote in favour from policymakers divided over whether inflation pressures had eased sufficiently, which initially dented the pound.
Thursday's decision was in line with the forecast in a Reuters poll of economists but financial markets had only seen just over a 60% chance of a cut.
MARKET REACTION:
STOCKS: The blue-chip FTSE 100 .FTSE extended gains, rising 0.2% on the day, while the domestically focussed FTSE 250 midcap index .FTMC pared losses and turned positive, up 0.2% versus a 0.17% decline earlier.
FOREX: Sterling GBP=D3 fell to a session low of $1.2752 immediately after the decision, before reversing some of those losses to trade at $1.27715, down 0.66% on the day. It was also softer against the euro which was up 0.36% at 84.5 pence. EURGBP=D3
BONDS: Benchmark 10-year gilt yields GB10YT=RR were last down 3 basis points on the day at 3.941%,compared with 3.936% before the decision.
COMMENTS:
JEREMY BATSTONE-CARR, STRATEGIST, RAYMOND JAMES, FRANCE:
"The UK’s economic performance has been stronger than expected in recent months, moving past the residual effects of earlier inflation and providing an economic boost for the newly installed Labour government.
However, real interest rates remain high and there has been a stronger-than-expected strengthening in demand over potential supply constraints, notably in the labour market. Despite this, the Committee has taken a leap of faith in cutting rates, hoping to stimulate consumers with lower borrowing costs and increased spending power."
NEIL BIRRELL, CHIEF INVESTMENT OFFICER, PREMIER MITON INVESTORS, LONDON:
"Falling UK interest rates have arrived at last. The Bank of England has moved from worrying about inflation to worrying about economic growth, although they are bound to be cautious about further cuts and can’t lead the bond market to expect too much too soon.
But, it is an important move, with only the U.S. not joining the global rate cutting party to date. We could see financial markets further reflect the turn in the cycle, at aggregate level, but probably more so within asset classes."
JASON SIMPSON, SENIOR FIXED INCOME STRATEGIST, STATE STREET, LONDON:
"If there's a perception of fiscal loosening then the market will see a lot more gilt supply coming into the market that has to be absorbed and a bit of an inflationary impact so that shine on gilts might fade."
JULIUS BENDIKAS, EUROPEAN HEAD OF ECONOMICS AND DYNAMIC ASSET ALLOCATION, MERCER, LONDON:
"We viewed this decision as a surprise, especially given elevated wage growth. Having said that, we expect 1 to 2 more rate cuts in 2024 with more to come in 2025. The economy has normalised, so should the interest rates."
MICHAEL BROWN, MARKET STRATEGIST, PEPPERSTONE, LONDON:
"Looking ahead, a relatively gradual quarterly pace of cuts seems most plausible for the (Bank of England), with further normalisation likely to coincide with meetings at which a Monetary Policy Report is published, leaving the base case as just one more cut this year, at the November meeting. Such a pace would be broadly in line with that priced by markets, and that likely to be delivered by other G10 central banks, potentially limiting any prolonged sterling downside on the back of today's decision."
Reporting by EMEA Markets Team; Compiled by Amanda Cooper; Editing by Samuel Indyk and Alun John
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
