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MNI POLICY: BOE Points To 4% Peak At Most, Then Rate Cuts

(MNI) London

The BOE's November projections and policymakers' comments are compatible with a rate peak at most of 4% followed, fairly swiftly, by interest rate cuts.

The Bank of England is heading for a cycle peak in Bank Rate of no more than around 4%, followed by a fairly rapid switch to easing to avoid a slide in projected inflation below target, projections from its November Monetary Policy report and comments by policymakers suggest.

The BOE’s “best view” of the peak is closer to the current 3% level of Bank Rate than the 5.25%, based on previous market assumptions of the highest point of the cycle, which the BOE used in its market-based projections, Governor Andrew Bailey told a news conference after its Nov 4 decision. While the Bank and its chief economist Huw Pill have signalled more rate rises are to come, this implies a peak of no more than roughly 4.1% at most, still well below the 4.7% priced in by investors today.

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The Bank of England is heading for a cycle peak in Bank Rate of no more than around 4%, followed by a fairly rapid switch to easing to avoid a slide in projected inflation below target, projections from its November Monetary Policy report and comments by policymakers suggest.

The BOE’s “best view” of the peak is closer to the current 3% level of Bank Rate than the 5.25%, based on previous market assumptions of the highest point of the cycle, which the BOE used in its market-based projections, Governor Andrew Bailey told a news conference after its Nov 4 decision. While the Bank and its chief economist Huw Pill have signalled more rate rises are to come, this implies a peak of no more than roughly 4.1% at most, still well below the 4.7% priced in by investors today.

Keep reading...Show less