Will the Bank of England cut interest rates next week? That’s why it looks better now

The pound bounced back from recent highs on Friday after new data showed the economy contracted for a second straight month.

Data from the Office of National Statistics reported a 0.1 drop in GDP for October, below expectations of 0.1 growth and following a 0.1 drop in the previous month.

Sterling fell 0.4 percent against the dollar after the announcement before returning to trade 0.2 percent below $1.26 by midday, having added 1 percent since end of November.

The decline reflected higher expectations among investors for the speed and magnitude of the Bank of England’s base rate cuts.

Rob Morgan, chief investment analyst at Charles Stanley, said: ‘Today’s weak year increases the risk of further interest rate cuts at the Bank of England’s December meeting next week.’

However, he added, the bank’s monetary policy committee is likely to opt for a break, with policy makers focusing on inflation.

While stocks rose on a rate hike on Friday, the market price still suggests investors expect the BoE to hold off on another rate cut until the February meetings, Or March.

Gabriella Dickens, G7 economist at AXA Investment Managers, said: ‘The recent weakness in performance may not be enough to warrant further cuts at its December meeting.

‘Due to strong inflation, rising CPI inflation and uncertainty about how much the National Insurance Institute (NIC) will pay in the form of higher premiums itself, (this is) keeping the members of the Monetary Policy Committee (MPC). wait and see mode.’

The CPI came in at 2.3 percent, an unexpected high for the 12 months to October, from 1.7 percent in the previous month, while core inflation rose to 3.3 percent.

BoE Governor Andrew Bailey has repeatedly expressed concern about the potential for inflation. The latest CPI data for November was released last week.

Thomas Pugh, economist at RSM UK, said: ‘There are also a number of risks on the horizon that could lead to higher inflation.

‘The geopolitical situation in the Middle East and Russia is clear; it is not clear how much the increase in prices from the financial institutions will try to offer; and new economic policies in the US may increase inflation in the UK through the impact of tariffs or a stronger dollar.

‘Ultimately, the MPC will conclude that the risk of inflation rising again and settling in outweighs the risk of the economy slowing.’

Pugh expects the Bank of England’s interest rate to fall to 3.5 percent by the end of next year, 125 basis points below its current level of 4.75 percent. Dickens of AXA IM thinks it will end at 3.75 percent.

Dickens said: ‘We think that the risks of ‘winding down’ of the cuts set by policymakers recently, are continuing to decline.

‘While government spending increases next year will boost growth, the fact that interest rates will remain in restrictive zones will continue to hold back house prices as they continue to rise. the uncertainty of the world.

‘We will see four cuts next year – one per quarter’