Investments in the money market show that traders are counting on a quarter percentage point reduction in interest rates by the end of the year, as a series of economic data points in favor of slowing economic growth and easing inflation.
Recently released figures indicated factory price inflation registered the slowest growth in nearly a year. At the same time, a separate report showed signs of weakening in the service sector and factories, which significantly reduced output, Bloomberg writes.
Market prices still indicate that the BOE could increase the interest rate by half a point next month and that it will reach 4.5 percent during the summer. However, speculation about a potential rate cut in 2023 indicates that there is doubt that the UK central bank will keep interest rates at high levels for the long term.
Inflation Rate in Question
In many developed economies, the end of the cycle of increasing interest rates is in sight, which encourages speculation among market participants regarding the direction of the central bank’s monetary policy. Economists have argued until recently that the Bank of England has been slower to cut rates than other central banks, especially when factors such as labor shortages are taken into account, which keeps inflation steady.
British government bonds outperformed Germany’s in the fifth trading session thanks to speculation of a rate cut, with the yield on the low-risk 10-year bond falling five points to 3.22 percent.
The Bank of England leaders will meet next week, in which the Federal Reserve and the European Central Bank will also hold meetings.
