Investors are betting on three interest rate cuts in the UK this year after the economy tipped into recession.
At the end of a week of crucial economic data, the Bank of England is now expected to lower headline borrowing costs from 5.25 per cent to 4.5 per cent by Christmas.
The timing of the first move remains uncertain, with bets on financial markets suggesting a 20 per cent chance it will come in May, 60 per cent in June and 80 per cent in August.
The pound fell to $1.2591 and €1.1696, while gilt yields dipped on the bond markets as investors ramped up bets on rate cuts.
Thomas Pugh, UK economist at consultant RSM UK, said: ‘A recession gives the Bank more cover to pivot towards cutting interest rates as early as the spring.’
Recession: At the end of a week of crucial economic data, the Bank of England is now expected to lower headline borrowing costs from 5.25% to 4.5% by Christmas
Megan Greene, who sits on the Bank of England’s rate-setting monetary policy committee (MPC), said she needs to see more evidence that inflation is returning to target before voting for rate cuts.
The economist, who until this month was voting to raise rates, said they will need to ‘remain restrictive for some time for inflation to sustainably return’ to 2 per cent.
Expectations are likely to shift again, however, after wild swings this week as investors grappled with a flurry of official figures.
On Tuesday, the Office for National Statistics (ONS) revealed that wages are rising at a faster-than-anticipated 6.2 per cent year-on-year, fuelling fears that pay growth is too strong for the Bank of England to cut interest rates soon.
And data in the United States showed inflation in the world’s biggest economy running ‘hot’ at 3.1 per cent– dashing hopes of an early rate cut by the Federal Reserve.
However, a UK rate cut this spring or early summer seemed possible again on Wednesday when the ONS said that inflation had held firm at 4 per cent in January – bucking expectations of a rise.
And pressure mounted on the Bank yesterday after the ONS said the economy shrank by 0.3 per cent in the final three months of 2023, meaning that the UK is in recession following a contraction of 0.1 per cent in the previous quarter.
The figures will be pored over by the MPC as it weighs up when and if rate cuts are appropriate.
Julian Jessop, economics fellow at the Institute of Economic Affairs, said: ‘The MPC’s job is to worry about inflation, not growth, but the case for early rate cuts is now even stronger.’
And Nicholas Hyett, an investment analyst at Wealth Club, said: ‘With inflation lower than expected this week, the news that the UK is in recession will lead to growing pressure for the Bank of England to cut interest rates.
‘But while recession is clearly bad news for the UK economy, it’s worth bearing in mind that, as recessions go, this is still a very mild one and might yet get revised out of existence altogether.
‘Whether today’s recession transforms into something that’s remembered outside the pages of an economic history textbook remains to be seen.’
News Related
-
Asylum seekers travel in an inflatable boat across the English Channel, bound for Dover on the south coast of England (Photo: Ben Stansall/AFP) Up to 40 Conservative MPs are poised to rebel over Rishi Sunak’s Rwanda deportation policy as they question ministers’ commitment to the scheme. A major row is ...
See Details:
Up to 40 Tory MPs ‘set to rebel’ if Sunak’s Rwanda plan doesn’t override ECHR
-
In the saltmarsh fringing where the Ballyboe River dissolves into Trawbreaga Bay, a little egret wears its plumage like a windblown stole. Our car swoops across the 10 arches of Malin bridge and we park along the village green. Malin is almost as far north as you can get on ...
See Details:
Country diary: A tale of three churches
-
Photograph: Chris Ratcliffe/EPA Hampton Court is an enduring monument to the power of Henry VIII, a pleasure palace down the Thames from Westminster and the City of London. On Monday it was the scene of power projection of a different kind, as Rishi Sunak pitched for investment from some of ...
See Details:
Sunak woos business elite with royal welcome – but they seek certainty
-
-
Tottenham interested in move to sign “fearless” £20m defender in January Tottenham Hotspur have joined the race to bring an overseas defender to the Premier League in January, according to a fresh report. Postecoglou’s centre-back options The Lilywhites currently have Micky Van De Ven, Ashley Phillips, Cristian Romero and Eric ...
See Details:
Tottenham interested in move to sign “fearless” £20m defender in January
-
A £100m campaign urging households and businesses to use less water will be funded from customers’ bills, Ofwat has said. Bill payers to stump up cost of £100m water usage campaign The regulator’s chief executive David Black told MPs that if the measures worked it would be cheaper than building ...
See Details:
Bill payers to stump up cost of £100m water usage campaign
-
FILE PHOTO: Soccer Football – FIFA Women’s World Cup Australia and New Zealand 2023 – Group B – Canada Training – Olympic Park, Melbourne, Australia – July 24, 2023 Canada’s Christine Sinclair during training REUTERS/Hannah Mckay/File Photo (Reuters) – BC Place in Vancouver, British Columbia, will be renamed “Christine Sinclair ...
See Details:
Soccer-Venue renamed 'Christine Sinclair Place' for Canada soccer great's final game
-
Michael van Gerwen is hunting down a fourth World Championship title (Picture: Getty Images) Michael van Gerwen is Phil Taylor’s tip to lift the World Darts Championship trophy for a fourth time in January, expecting a backlash from the recent defeat in the Players Championship Finals. The 2024 World Championship ...
See Details:
Phil Taylor makes his pick for 2024 World Darts Championship winner
-
Michael van Gerwen is hunting down a fourth World Championship title (Picture: Getty Images) Michael van Gerwen is Phil Taylor’s tip to lift the World Darts Championship trophy for a fourth time in January, expecting a backlash from the recent defeat in the Players Championship Finals. The 2024 World Championship ...
See Details:
Soccer-Howe aims to boost Newcastle's momentum in PSG clash
-
Michael van Gerwen is hunting down a fourth World Championship title (Picture: Getty Images) Michael van Gerwen is Phil Taylor’s tip to lift the World Darts Championship trophy for a fourth time in January, expecting a backlash from the recent defeat in the Players Championship Finals. The 2024 World Championship ...
See Details:
Hamilton heads for hibernation with a word of warning
-
Michael van Gerwen is hunting down a fourth World Championship title (Picture: Getty Images) Michael van Gerwen is Phil Taylor’s tip to lift the World Darts Championship trophy for a fourth time in January, expecting a backlash from the recent defeat in the Players Championship Finals. The 2024 World Championship ...
See Details:
Carolina Panthers fire head coach Frank Reich after 1-10 start to the season
-
Michael van Gerwen is hunting down a fourth World Championship title (Picture: Getty Images) Michael van Gerwen is Phil Taylor’s tip to lift the World Darts Championship trophy for a fourth time in January, expecting a backlash from the recent defeat in the Players Championship Finals. The 2024 World Championship ...
See Details:
This exercise is critical for golfers. 4 tips to doing it right
-
Michael van Gerwen is hunting down a fourth World Championship title (Picture: Getty Images) Michael van Gerwen is Phil Taylor’s tip to lift the World Darts Championship trophy for a fourth time in January, expecting a backlash from the recent defeat in the Players Championship Finals. The 2024 World Championship ...
See Details:
One in three households with children 'will struggle to afford Christmas'
-
OTHER NEWS
Kobbie Mainoo made his first start for Man Utd at Everton (Photo: Getty) The Football Association are reportedly confident that Manchester United starlet Kobbie Mainoo will choose to represent England ...
Read more »
Michael Smith will begin the defence of his world title on the opening night (Picture: Getty Images) The 2024 World Darts Championship is less than three weeks away and the ...
Read more »
For the first time a long haul commercial aircraft is flying across the Atlantic using 100% sustainable aviation fuel (SAF). A long haul commercial flight is flying to the US ...
Read more »
The King has met business and finance leaders from across the world at a Buckingham Palace reception to mark the conclusion of the UK’s Global Investment Summit. Charles was introduced ...
Read more »
After Ohio State’s 30-24 loss to Michigan Saturday, many college football fans were wondering where Lou Holtz was. In his postgame interview after the Buckeyes beat Notre Dame 17-14 in ...
Read more »
Darius Slay wouldn’t have minded being penalized on controversial no-call No matter which team you were rooting for on Sunday, we can all agree that the officiating job performed by ...
Read more »
New England Patriots quarterback Mac Jones (10) Quarterback Mac Jones remains committed to finding success with the New England Patriots even though his future is up in the air following ...
Read more »