It’s a busy day for central bankers, with the Bank of England expected to leave UK interest rates at a 16-year high at noon. Despite inflation dropping to a two-and-a-half-year low on Wednesday, economists predict BoE policymakers will choose to leave the bank rate at 5.25%. That would fail to bring any relief to UK borrowers, and maintain the pressure on the economy from higher borrowing costs. According to the money markets this morning, ‘no change’ offers a 95% chance while there’s just a 5% possibility of a quarter-point cut (lowering rates to 5%). The Bank has made clear in recent weeks it wants to see further evidence that inflationary pressures are falling'; economists will scrutinise the minutes of this week’s meeting for any hints as to how long policy should remain restrictive. At last month’s meeting, the Bank’s nine policymakers split three ways – six voted to hold, two wanted a rise, and one a cut. That split could change today, as the MPC weighs up the risks of tightening for too long, versus easing too early. The Bank will surely have appreciated yesterday’s drop in CPI inflation to 3.4%, nearer to its 2% target. But it will also have noted that services inflation – a guide to domestic inflationary pressures – was 6.1%. That could be too high for comfort, for the BoE. The MPC will also want to see signs that wage pressures are easing. Not cutting has its risks, though. Monetary policy operates with a lag – meaning interest rate changes are like turning the rudder on a supertanker, not the steering wheel of a racing car. Last month, the Bank’s former chief economist, Andy Haldane, warned that keeping rates high could ‘crush the economy’. Haldane’s successor, Huw Pill, has likened the Bank’s challenge to a trip on Table Mountain. Rates may have reached their highest levels, but there’s more of a plateau to travel before they start falling…. If not a cut now, then when? Many City analysts predict the BoE will start cutting rates by this summer, when inflation could have dropped all the way back to its 2% target. Modupe Adegbembo, economist at Jefferies, expects the MPC to keep rates on hold at 5.25% and begin cutting in August. 'Given the resilience of the economy, we think the BoE will cut rates steadily, pencilling in 75bp of cuts across this year leaving the bank rate at 4.50% by end-2024.' Stock markets are in a buoyant mood today after America’s central bank stuck with its forecast that US rates will be lowered by three-quarters of a percentage point this year. Last night, the Federal Reserve left interest rates on hold, but also signalled it still expects to cut rates three times this year. That cheered Wall Street, driving the DowJonesindustrialaverage up by 1% last night. Today, Japan’s Nikkei index has jumped 2% to a new all-time closing high. The agenda • 7am GMT: UK public finances • 8am GMT: Taiwan’s interest rate decision • 8.30am GMT: Switzerland’s interest rate decision • 9am GMT: Norway’s interest rate decision • 9am GMT: Eurozone ‘flash’ PMI survey of business activity for March • 9.30am GMT: UK ‘flash’ PMI of business activity for March • Noon GMT: Bank of England interest rate decision • 12.30pm GMT: US weekly jobless figures We’ll be tracking all the main events throughout the day ...
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