Tomorrow the Bank of England is widely expected to cut rates to 4.5%. With the cut considered a ‘done deal’, exchange market expert Russell Gous reflects on what it could mean for markets if the predictions are wrong.
Editor-in-Chief of TopMoneyCompare, Russell Gous says: “With a cut to 4.5% widely expected, a surprise decision to hold rates at 4.75% would likely rattle markets.
Experts estimate the chances of a cut at around 90%, expecting an 8-1 decision in favour. So a decision to stick at 4.75% would come as a real shock—but it’s not impossible. Inflation did fall in December, but it’s still stubbornly above the 2% target, and concerns of exacerbating inflationary pressures could influence a hawkish response.
Given that financial markets have already priced in a cut, an unexpected hold might provide sterling some short-term relief but ultimately markets will want to see a recovery in the UK economy.
Major mortgage lenders have already started reducing rates in anticipation of a cut, and an unexpected hold could force them to reassess their pricing. This could create uncertainty for borrowers, particularly those looking to secure new deals in the coming weeks.
Although still unlikely, if the Bank holds rates tomorrow, attention will immediately shift to its rationale and forward guidance. Markets will be watching closely to see whether it would just be a delay or a sign that rate cuts may not come as quickly, or as deeply, as previously thought.“
