Interest Rate Dynamics: Navigating Uncertainty Post Central Bank Decisions

Interest rates remain in focus after central bank decision week

Following an intense week of central bank decisions with most of them being in line with expectations of keeping rates unchanged, it's become evident over the past few months that financial markets are aligned in the belief that UK interest rates have reached their peak and it would be surprising if the Bank of England were to implement an increase in UK interest rates in the near future, with such a decision likely only occurring in response to a substantial shock in inflation data. Meanwhile, predicting the timing of the initial interest rate cut, which would mark the first fall in UK interest rates since March 2020, is more challenging.

One thing that remains clear is that the UK economy is in a much worse position than both its European and US counterparts as GDP forecasts continue to indicate the potential for a recession which may trigger a response from the central bank. The BoE has also appeared to follow the US central bank (Federal Reserve) in its footsteps and may await the signal from it before starting its own rate cut cycle as rates are also expected to start falling in early 2024. In either case, new Bloomberg projections point to the possibility of the first rate cut being implemented by the Bank of England in the first quarter of 2024, followed by a gradual fall in rates throughout the following meetings with the target being reached in the coming years.

Walid Koudmani

Market Analyst working in UK-Italian-Arabic markets covering a broad range of assets including stocks, commodities, FX and crypto. English, Italian and Arabic Speaker with a B.A in Business Management. Quoted in many prestigious publications including the Guardian, Barrons and Lefigaro and winner of bloomberg top forecast rank Q-2/Q-3 2020.