Morgan Stanley experts say that there is still a possibility that next month the Bank of England will begin implementing a monetary policy easing strategy, under which interest rates will be cut.
It is worth noting that the mentioned point of view is an example of what can be described as rare optimism. Currently, confidence in the markets is significantly weakening that in May the financial regulator of the United Kingdom will get started lowering the cost of borrowing.
Chief Economist at Morgan Stanley Jens Eisenschmidt said that the experts of this organization still do not exclude the possibility that the Bank of England will implement cutting interest rates next month. He made the corresponding statement during a conversation with media representatives last Wednesday, April 17.
At the same time, the LSEG consensus forecast provides that the UK financial regulator will start implementing the interest rate-cutting strategy no earlier than September. It is also worth noting that currently, the issue of monetary policy of the Bank of England has a certain political context. The problems of the condition of the economic and financial systems of the United Kingdom have an increased level of actuality against the background of the country’s preparations for the general elections, which, according to media reports, are due to take place shortly before January 28, 2025.
Expectations that the Bank of England will start lowering borrowing costs next month have weakened significantly after it turned out that inflation in the US turned out to be more sustainable than expected. The aggressive comments of the Federal Reserve form a kind of foundation for doubts about global disinflation. It is worth noting that inflation in the United States is an important international indicator in a sense since the economy of this country has a significant impact on the global economic system.
The European Central Bank last week announced its intention to start cutting interest rates shortly. However, a few days later, this financial regulator noted that the escalation of tensions in the Middle East could become a barrier to the implementation of the mentioned plan.
Bank of England Governor Andrew Bailey said on Wednesday that the outlook in Europe differs from forecasts in the United States. He expressed optimism about the decline in inflation in the United Kingdom, describing the latest relevant data as largely consistent with the expectations of the financial regulator. This statement can be interpreted as a signal of the Bank of England’s readiness to lower the cost of borrowing. At the same time, the position of the financial regulator on monetary policy easing still needs to be clarified.
In March, inflation in the United Kingdom was recorded at 3.2%. In February, this figure was 3.4%. At the same time, some analysts expected inflation in the United Kingdom to be fixed at 3.1% in March.
The Bank of England is relatively optimistic about the prospects for the dynamic of the growth in the cost of goods and services. The financial regulator expects inflation in the United Kingdom to fall below the 2% target in the second quarter of 2024 and then rise to 3% by the end of the current year.
Jens Eisenschmidt agrees with the mentioned point of view. The expert notes that all central banks are in the same boat to some extent. According to him, the disinflation process is bumpy and not fully secured. The expert suggests that the Bank of England and the ECB will cut interest rates in the foreseeable future. He also said that the Fed will have to wait a bit before starting to lower the cost of borrowing.
Morgan Stanley this week revised its outlook on interest rate cutting by the ECB. The bank expects that the European financial regulator will carry out three acts of lowering the cost of borrowing this year and will begin implementing the corresponding strategy in June. Moreover, Morgan Stanley predicts that the Fed will cut interest rates the same number of times in 2024. According to experts, the central bank of the United States will begin to ease monetary policy in July.
As we have reported earlier, UK Economy Demonstrates Growth.
