LIVE MARKETS-UBS expects BoE to deliver only three rate cuts this year after strong data

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UBS EXPECTS BOE TO DELIVER ONLY THREE RATE CUTS THIS YEAR AFTER DATA

UBS Global Research expects the Bank of England (BoE) to deliver a total of 75 basis points of interest rate cuts this year after higher-than-expected inflation and wage growth data.

UBS forecasts the central bank will cut rates by 25 bps at each of its policy meetings in May, August and November taking the Bank Rate to 3.75% by year-end 2025, from its current 4.5%.

Other brokerages including BofA also expect three cuts this year, with the next cut in May.

Earlier this week, data showed British inflation came in hotter-than-expected for January, hitting a 10-month high, while wage growth also accelerated in late 2024, that underscored why the BoE has been cautious about cutting interest rates despite a weak overall economy.

"While we previously expected the Bank to accelerate the pace of easing in H2, we now expect the Bank to continue its gradual pace of easing throughout this year," said UBS economists.

UK finance minister Rachel Reeves' decision to increase employers' social security contributions comes into effect on April 1 when Britain's minimum wage is also due to rise by almost 7%, raising questions about how much the increased costs for businesses will feed into prices.

The BoE forecasts that consumer price inflation will peak at 3.7% in the third quarter of 2025, driven mostly by higher energy costs and regulated tariffs for items such as domestic water supply.

Investors are betting on the central bank cutting rates by 47.8 bps by end of this year, implying about two quarter-point cuts, as per data compiled by LSEG.

(Siddarth S)

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