The Bank of England’s MPC, at February's meeting, elected to keep the base rates at 5.25% for a fourth consecutive time. However, there were some signs that the next move in interest rates is more likely to be a cut. The MPC chose to drop its tightening bias, instead suggesting that it “will keep under review for how long [the] bank rate should be maintained at its current level.”
The MPC lowered its near-term modal forecast for inflation to 2% for the second quarter of 2024 from their previous forecast of 3.6%, primarily due to lower utility prices. However, they have raised their three-year modal forecast from 1.5% to 1.9%.
Additionally, the MPC increased its expectations for growth over the forecast period. With less economic slack building up over time, it now believe second-round effects in domestically generated inflation are expected to take longer to unwind than they did to emerge.
Markets now expect the first interest rate cut to be around the middle of the year, with a total of 86 bp of cuts priced in for 2024.
Yields rose substantially over January, with 30-year and 50-year nominal yields rising 32 bp and 37 bp respectively. Real yields moved in a similar fashion, with 30-year and 50-year real yields increasing by 34 bp and 36 bp respectively.