The debate on the pace of interest rate cuts also begins in the UK – Commerzbank

It appears that the Bank of England (BoE) is now starting to talk about faster rate cuts, notes Michael Pfister, FX analyst at Commerzbank.

The BoE’s next move depends on inflation figures

“On Thursday, BoE Governor Andrew Bailey put sterling under considerable pressure by openly expressing his support for faster interest rate cuts. As a result, the market has priced in a 25bp discount at each of the two remaining meetings this year. On Friday, the BoE’s chief economist, Huw Pill, responded with more vulgar comments, suggesting that prudent rate cuts would be more appropriate. Of course, rate expectations have come down somewhat since then.”

“However, it is likely to be a temporary hiatus. The comments make clear that the Bank of England cannot disassociate itself from discussions at other central banks, where the pace of interest rate cuts is set to accelerate as inflationary pressures ease. This is not good news for the pound. After all, much of the pound’s strength this year has been based on expectations that the BoE will be more cautious in cutting its rates and that the interest rate differential with other currencies would shift in the pound’s favor.”

“Of course, the BoE’s next move will also depend on the inflation figures. The latest figures suggest that inflationary pressures remain stubborn, which would argue for more strength in the pound. However, the talks make it clear that the risks to a further appreciation of the pound are increasing.”