Rates Spark: The Fed Is Talking A Lot But The BoE Will Deliver

2025-05-08 04:30:00 ET

Summary

• The Fed was balanced, but yields managed to edge lower on rate cut optimism; cuts are still seen as inevitable, eventually.
• The Bank of England will likely cut rates, but this won't come as a surprise to the market.
• Having said that, sterling rates remain sensitive to moves in US rates, which puts markets at risk of pricing in too many more cuts in the near term.

By Michiel Tukker , Benjamin Schroeder , and Padhraic Garvey, CFA

A move lower in US rates could overprice the number of Bank of England cuts

We think the Bank of England will cut the policy rate by 25bp, and so do markets, with a full cut already priced in. Markets see the chance for a consecutive cut in June at around 50%, but here we disagree. Instead, our economists still sees the BoE sticking to a gradual easing of one cut per quarter . The sharper pricing of markets is mainly a spillover from the global unrest since Trump’s tariff’s announcements. We therefore wouldn’t push against this for now - trade negotiations are still underway, and the consequences have not yet had a chance to materialise in the data....

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