J.P.Morgan Anticipates Earlier Interest Rate Cuts by Bank of England

J.P.Morgan has revised its outlook on the Bank of England’s monetary policy, now predicting that the central bank will initiate interest rate cuts as early as August this year. This revised forecast is driven by signs of easing inflation and a growing sentiment that the UK economy may achieve a ‘soft landing’ after the economic turbulence of recent years.

The financial services firm has adjusted its policy rate forecast, now anticipating a cumulative 75-basis point reduction in interest rates by the end of 2024. This adjustment would bring J.P.Morgan’s policy rate forecast to 4.5 percent, a significant change from the Bank of England’s current benchmark rate of 5.25 percent. Notably, this prediction marks a shift from J.P.Morgan’s earlier projection, which anticipated the Bank of England to start reducing rates only in November.

Despite an unexpected uptick in the latest inflation report in December, the trajectory of British consumer prices has shown a more rapid decline than initially anticipated in the latter part of the previous year. After peaking at a 41-year high of 11.1 percent in late 2022, the rate of inflation has been subsiding, leading many economists to predict a return to the Bank of England’s 2 percent inflation target by April or May 2023, significantly sooner than the central bank’s own forecast.

J.P.Morgan pointed out that the prospect of inflation dipping below the target, even briefly, is likely to exert pressure on the Bank of England to commence rate cuts within the year. This outlook aligns with the broader expectation of easing monetary policy, as reflected in the financial markets.

In addition to its predictions regarding interest rates, J.P.Morgan has also updated its UK economic growth forecast for 2024, raising it from a modest 0.2 percent to a slightly more optimistic 0.3 percent. This upward revision indicates a cautiously optimistic view of the UK’s economic resilience and potential for recovery in the coming months.

As the economic landscape continues to evolve, the financial community and policymakers alike will be closely monitoring these developments, gauging the timing and magnitude of monetary policy adjustments to ensure stability and foster sustainable growth in the UK economy.