BoE Expected to Cut 25bps

BoE Expected to Cut 25bps

At 1200 noon today, markets will turn their attention to Threadneedle Street where the Bank of England are widely expected to conduct a 25bps cut – the third such cut in their current cycle.

Such a decision would bring the BoE’s benchmark interest rate to 4.5%, which would mark the lowest level since H1 2023.

Since their last monetary policy meeting on 19th December, inflation has shown signs of easing marginally over December to 2.5%. While this marked a 10bps reduction from November’s meeting (and thus would have been a welcome sign for policy makers), it nonetheless marks the second highest print since March 2024 (indicative therefore of how the central bank is not out of the woods in its fight against inflation). Moreover, since their last meeting, headlines have been dominated by concerns over dampened growth and unease over the government’s fiscal credibility. (Such concerns being manifested in yields on 30-year and 10-year UK treasuries rising to their highest level since 1998 and 2008, respectively).

Notwithstanding these inflationary pressures, growth concerns will be undoubtably be feeding into some members of the BoE looking to toe a more dovish line. For example, the latest quarterly growth figures showed the UK economy stalled in Q3 with the ONS indicating that there was no growth in the services sector, while a 0.7% increase in construction was offset by a 0.4% fall in production. Such sluggish output comes as business confidence shows signs of softening further amid concerns around the rise in national insurance contributions alongside the general rise in the tax burden.

Indeed, during the last monetary policy summary, policy makers downwardly revised growth expectations, and markets will be keeping a close eye on today’s GDP forecasts alongside any additional forward guidance. They also noted that they discussed the “risks to global growth and inflation stemming from geopolitical tensions and trade policy uncertainty, with indicators of the latter having increased materially”.

The BoE therefore continue to navigate across a precarious tightrope given growth and inflationary concerns, and markets will be closely monitoring the next move from Threadneedle Street, as they look for further guidance around the central bank’s monetary policy pathway.

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ADP Beats Expectations Ahead of Nonfarms

With markets continuing to keep a close eye on the health of the US labour market in the run up to tomorrow’s nonfarm payrolls, yesterday’s ADP employment change came in considerably stronger-than-expected.

Against expectations of a 150,000 print, yesterday’s data indicated that US private sector job creation rose to 183,000 in January – an increase of 7,000 from last month’s print.

Attention now turns to the release of tomorrow's US labour market data.