BoE Faces Challenging Path with Inflation and Rate Cuts

The Bank of England is expected to cut interest rates four times this year to support the economy. However, inflation concerns may limit these plans. Although inflation expectations rise, most economists predict four cuts, while recent market conditions and fiscal concerns may pose additional challenges.

Economists anticipate the Bank of England (BoE) will reduce interest rates four times this year to bolster the stagnant economy, despite inflation risks leaning upwards, suggests a recent Reuters poll.

Interest rate futures reflect expectations of only two rate cuts, as global bond markets react to rising inflation prospects fueled by U.S. policies. Despite a recent unexpected slowdown in UK inflation, and a sharper decline in core price growth, the BoE may still proceed with cuts, although limited by inflation concerns.

Two-thirds of surveyed economists predict four cuts, but confidence in this outcome wavers, with JP Morgan analysts noting a potential BoE hesitance amid escalating inflation expectations. Amid a pound and debt sell-off, the 10-year gilt yield has peaked since 2008, complicating fiscal policy further.

(With inputs from agencies.)