On Monday, interest rate futures fully anticipated a quarter-point rate cut by the Bank of England (BoE) for their August meeting, with expectations set for two rate cuts by the year’s end. This marks a shift from last week’s more cautious projections. As of 0745 GMT, the futures indicated a 25 basis point cut by August 1 and a total of 54 basis points by December 19. This is an adjustment from the previous day’s expectations of 17 basis points and 42 basis points, respectively.
In the bond market, two-year gilt yields dropped to a one-week low of 4.367% at 0741 GMT, a decrease of 2 basis points from the previous day. Last week, the financial markets had scaled back their expectations for BoE rate cuts following a report of slightly higher-than-expected British inflation and revised forecasts for rate cuts by the U.S. Federal Reserve.
However, BoE Deputy Governor Dave Ramsden, speaking in Washington late on Friday, offered a more optimistic view. He mentioned, “I now viewed it as possible that British inflation was on track to fall to and stay at its 2% target,” which is lower than previous forecasts by the BoE. This statement has influenced market expectations, leading to the current pricing in of earlier and more significant rate cuts.
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