At dusk on January 7, 2025, Piccadilly Circus, London, England.
Richard Baker | In Pictures | Getty Images
LONDON – Traders are betting the Bank of England will cut interest rates further this year after weak retail sales added to a series of surprising data this week.
The Office for National Statistics said on Friday sales fell 0.3% in December from the previous month, compared with forecasts in a Reuters poll of economists for a 0.4% rise.
Nicholas Found, head of business content at consultancy Retail Economics, said “cautious spending” dominated during the festive period, adding that the data showed the ongoing impact of the cost of living crisis on consumer behaviour.
After Friday’s news, the market expects the Bank of England’s current key interest rate of 4.75% to be cut by more than 75 basis points throughout 2025. In comparison, a rate cut of about 65 basis points was expected the day before, but the rate cut later on Friday fell back to 70 basis points. The central bank’s next meeting will be held on February 6, and the market is generally expected to cut interest rates by 25 basis points.
Disappointing retail data added to Britain’s bleak economic picture and added to the challenges facing Finance Secretary Rachel Reeves. Growth and reducing the country’s debt-to-GDP ratio serve as her main focuses.
Earlier this week, the Office for National Statistics announced that the UK economy Growth was only 0.1% in November and stalled within three months. Simultaneous inflation The decline exceeded expectations to 2.5%also increased market bets on the extent of interest rate cuts by the Bank of England this year after 2024 reduced by half a percentage point.
Complicating things further for Reeves, he announced Large-scale tax increase package Late October aims to reduce the deficit following recent volatility in global bond markets, something the UK also feels strongly about Borrowing costs fall this weekThis month, long-term debt premiums have risen to a 27-year high, and short-term yields have risen to their highest levels since the financial crisis.
This leads to the following prospect higher mortgage rates and questioned whether Reeves would make further announcements Raise taxes or reduce public spending to meet her self-imposed fiscal rules.
Craig Inches, head of rates and cash at Royal London Asset Management, said: “It’s a real challenge for the UK economy at the moment… You look at UK bond yields and they’re very high.
“One of the reasons is that the UK base rate is still significantly higher than many markets around the world, so when you talk about what the Bank of England might do at the February meeting, we absolutely think they should cut rates and our forecast is that they have to cut rates this year. four times.
Investec chief economist Philip Shaw said in a report on Friday that retail sales are particularly volatile around Christmas, with the monthly slump during the festive period in December 2023 almost completely offset by a rise in January. twist.
“The market doesn’t seem to be in the mood to trust the UK at the moment,” Shaw added, noting that sterling fell against the euro and dollar on Friday.
