The Bank of England will start bringing down interest rates in August, according to a slim majority of economists polled by Reuters, while only slightly fewer of them predicted a rate cut next month.
BoE Governor Andrew Bailey said after last week's monetary policy meeting that policymakers needed to see more evidence that inflation will stay low but said he was optimistic things were moving in the right direction and did not rule out a June cut.
The BoE lifted Bank Rate by a combined 515 basis points from late 2021 to the middle of 2023, taking it to a 16-year high of 5.25% to tackle inflation that peaked at 11.1% in October 2022.
But services inflation, an indicator of domestic price pressures closely watched by the BoE, has remained sticky, at 6.0% in March. Two inflation releases and one set of labour market data are due before the June 20 policy meeting.
In the May 13-16 poll, just over half of economists, or 38 of 71, predicted the first rate cut to 5.00% would come in August. Thirty-one opted for June, a slightly smaller proportion of the sample than in an April poll, while two said September.
"The reason I'm currently leaning a little bit more towards August rather than June is that with signs the economy is doing OK, the BoE is unlikely to feel the need to rush into cutting interest rates," said Dean Turner, chief euro zone and UK economist at UBS Global Wealth Management.
"They have time to ensure further progress on services inflation and wage pressures."
Gilt-edged market makers (GEMMs) were almost evenly split on the timing of the first cut. Of 15 GEMMs who participated, eight said June while seven said August. Financial markets are pricing two rate cuts this year, starting in June.
All but one of 16 economists in the wider poll forecasting an August cut who answered an additional question on the risk to their view said the first reduction was more likely to come earlier than they expect rather than later.
A policy change in August would line the BoE up with its major peers, albeit slightly later than the European Central Bank's expected June move but ahead of U.S. Federal Reserve action predicted to come in September.
"We're looking for a couple of cuts this year just to bring rates down from currently restrictive levels and making it a little bit less restrictive," said Jennifer Lee, senior economist at BMO Capital Markets.
"So by no means is this going back to where we were during the pandemic days obviously, but just to show they're helping a little bit, easing the pressure off households."
Bank Rate was seen at 4.75% by end-Q3 and 4.50% by end-Q4, unchanged from last month's poll.
Inflation was predicted to average 1.9% this quarter and 2.0% next but rise slightly in Q4 and stay around there until at least the end of 2025. Median forecasts showed inflation averaging 2.4% this year and 2.2% next.
Asked about the risk of a resurgence of UK inflation over the next three months, a firm majority of 82%, or 28 of 34 respondents, said it was low.
Economic growth was expected to slow to 0.3% in every quarter until end-2025.
Across 2024 the economy is forecast to expand 0.5%, faster than last month's 0.4% prediction. It is expected to accelerate to 1.2% and 1.4% in the following two years, respectively, according to a larger sample of respondents.
(For other stories from the Reuters global economic poll:)
