Citi Extends Expectations for BoE Rate Cut to August Next Year

Citigroup has adjusted its forecast for the Bank of England (BoE) to initiate interest rate cuts to August of the following year, a postponement from its previous May prediction.

This change comes as proposed national insurance and personal tax reductions may heighten inflation. On Wednesday, UK Finance Minister Jeremy Hunt revealed a proposal to decrease National Insurance contributions by 2%.

In a note from November 22, Citigroup's economists anticipate a total of 100 basis points in cuts by 2024. They suggest that monetary policy should hold off until there's clear evidence of diminishing wage inflation and assurance that fiscal measures won't significantly amplify inflation risks.

They believe that the Bank of England may be delaying rate cuts for too long. Given the upcoming elections, Citigroup expects the beginning of a rate cutting phase to most likely start in the third quarter of the next year.

Since December 2021, the British central bank has increased interest rates by a cumulative 515 basis points over 14 successive meetings, culminating in August of the current year.