BoE Prepares Unconventional Rate Cut Cycle During Economic Recovery

According to a Bloomberg report, the Bank of England (BoE) is set to embark on a rare cycle of rate cuts, unlike previous cycles which occurred during economic downturns. The BoE’s Monetary Policy Committee is expected to begin reducing borrowing costs as early as August, with further cuts anticipated in November. BoE Governor Andrew Bailey acknowledged that this cycle is different from previous ones as it is taking place during an economic recovery, rather than in response to a shock or crisis. While investors anticipate four quarter-point cuts between June and December, Bailey emphasized that the bank has no preconceived notions regarding the speed and extent of the cuts. The BoE aims to gradually decrease rates to their neutral level, which is currently unknown. This cautious approach is necessary to avoid reigniting inflationary pressures while minimizing damage to economic growth. Analysts believe that the BoE may adopt a slow and gradual rate-cutting strategy to prevent sterling from depreciating and inflation from rising excessively if the Fed continues to keep rates elevated. Ultimately, the BoE must find a delicate balance between easing rates and avoiding reversals.