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BOE: VIEW CHANGE: Deutsche Bank looks for May next cut (previously August next)

BOE
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  • "The chances of a May rate cut have risen meaningfully, relative to our previous basecase of no rate cuts in Q2-25. As such, we now see the MPC cutting Bank Rate one more time in H2-25 (May) – though this remains a very close call and will be predicated on inflation broadly evolving in line with the MPC's projections."
  • Deutsche Bank had previously expected the next cut to only come in August. This is in line with the sellside consensus that the next cut will come in May. However it still looks for sequential cuts later in the year:
  • "Stick to our call for three rate cuts in H2-25, taking the total quantum of rate cuts expected this year to five (from four). Indeed, since our last update, the threat of
    trade war has risen in recent weeks. And likely confirmation of wage settlements in 2026 pushing lower to 3% by Q4-25 should give the MPC more runway to cut further. We retain our view that Bank Rate will drop to 3.25% – a touch above the middle of the new nominal neutral rate range provided by the MPC. Risks to our
    view are skewed in a hawkish direction (i.e. no further rate cuts in H1-25)."
  • Deutsche Bank notes reasons for the call change: 1) "the MPC still believes in the disinflation path", 2) "The press conference (as well as the minutes) stressed the
    expected jump in inflation would likely be temporary, and unlikely to lead to second-round effects" 3) "Dovish divisions have risen within the MPC."
  • "Despite the dovish vote tally, the debate around 'cautious' vs 'careful' presents some mixed messages highlighting some consternation around the speed and scale of any dialing down of restrictive policy"
  • And on March: "Now think the March meeting will bring about a narrow majority for a hold (5-4);" Mann, Dhingra, Ramsden and Taylor dovishly dissent.
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  • "The chances of a May rate cut have risen meaningfully, relative to our previous basecase of no rate cuts in Q2-25. As such, we now see the MPC cutting Bank Rate one more time in H2-25 (May) – though this remains a very close call and will be predicated on inflation broadly evolving in line with the MPC's projections."
  • Deutsche Bank had previously expected the next cut to only come in August. This is in line with the sellside consensus that the next cut will come in May. However it still looks for sequential cuts later in the year:
  • "Stick to our call for three rate cuts in H2-25, taking the total quantum of rate cuts expected this year to five (from four). Indeed, since our last update, the threat of
    trade war has risen in recent weeks. And likely confirmation of wage settlements in 2026 pushing lower to 3% by Q4-25 should give the MPC more runway to cut further. We retain our view that Bank Rate will drop to 3.25% – a touch above the middle of the new nominal neutral rate range provided by the MPC. Risks to our
    view are skewed in a hawkish direction (i.e. no further rate cuts in H1-25)."
  • Deutsche Bank notes reasons for the call change: 1) "the MPC still believes in the disinflation path", 2) "The press conference (as well as the minutes) stressed the
    expected jump in inflation would likely be temporary, and unlikely to lead to second-round effects" 3) "Dovish divisions have risen within the MPC."
  • "Despite the dovish vote tally, the debate around 'cautious' vs 'careful' presents some mixed messages highlighting some consternation around the speed and scale of any dialing down of restrictive policy"
  • And on March: "Now think the March meeting will bring about a narrow majority for a hold (5-4);" Mann, Dhingra, Ramsden and Taylor dovishly dissent.