The Bank of England (BoE) is expected to take a measured approach in adjusting its monetary policy, with Barclays (LON:BARC) analysts predicting that the central bank will hold off on more aggressive rate cuts until mid-year.
While the BoE recently reduced the Bank Rate by 25 basis points to 4.5%, the decision exposed a rare divergence among policymakers.
Two members of the Monetary Policy Committee (MPC) voted for a more substantial 50-basis-point cut, signaling a growing faction within the committee that favors a more proactive approach to easing.
Despite this dissent, Barclays maintains that a gradual strategy remains the preferred course of action for the majority of the MPC.
The bank's analysts anticipate that another 25-basis-point cut could come in May, followed by a shift to sequential cuts beginning in June.
This outlook aligns with the BoE's cautious stance, which emphasizes stability over rapid changes in policy.
Governor Andrew Bailey and other key policymakers have consistently signaled a preference for gradual easing rather than sudden adjustments that could unsettle financial markets.
A key factor influencing the BoE's decision-making is the state of inflation. Barclays notes that while inflation expectations remain anchored, projections indicate a temporary uptick in consumer price index (CPI) inflation to 3.7% in the third quarter of this year.
However, the BoE appears inclined to look past this near-term rise, attributing it largely to energy prices and one-off regulatory adjustments rather than underlying inflationary pressures.
The central bank's broader forecast suggests inflation will return to its 2% target by mid-2027, albeit with a modest undershoot towards the end of the forecast period.
The labor market remains another focal point for policymakers. Barclays analysts point to survey data suggesting that wage growth is expected to slow over the coming months, though it remains above levels consistent with the BoE's inflation target.
The brokerage flags a gradual cooling in wage pressures, which could give the BoE confidence to proceed with rate cuts as planned.
The upcoming months will be pivotal for the BoE's decision-making, with key economic indicators—such as real GDP data and labor market reports—expected to provide further insight.
Barclays expects GDP figures to confirm that the UK economy saw no growth in the final quarter of last year, reinforcing the case for monetary easing.
However, despite some MPC members pushing for a faster pace of cuts, Barclays analysts believe the balance of opinion within the committee will keep the trajectory of easing on a steady and measured path.
Barring any major surprises in economic data, Barclays projects a series of 25-basis-point cuts in June, August, and September, which would bring the Bank Rate down to 3.5% by the end of the year.
This forecast reflects the expectation that the BoE will prioritize a cautious and data-driven approach to monetary policy, ensuring that inflation remains under control while providing support to an economy struggling for momentum.(Cay) Newsmaker23
Source: Investing.com
