Citi pushes out BoE rate cut expectations to August next year

(Reuters) – Citigroup said it expects the Bank of England (BoE) to deliver its first rate cut in August next year, later than its earlier expectation of May, as national insurance rate cuts, as well as personal tax cuts add to inflationary risks.

British finance minister Jeremy Hunt announced on Wednesday plans to cut the amount that workers pay as contributions to the National Insurance system by 2 percentage points.

Economists at Citi said in a note dated Nov. 22 they expect a 100 basis points of cuts through 2024 and that monetary policy must “not only wait for clear evidence that wage inflation has eased, but also that fiscal policy will not use any subsequent space to meaningfully increase the risk.”

“The implication is almost certainly waiting far too long to begin to loosen,” they added.

These near-term policy measures ahead of elections imply the start of potential rate cutting cycle is most likely to occur in the third quarter of next year, the economists said.

The British central bank has raised interest rates by 515 basis points in 14 consecutive meetings from December 2021 through August this year.

(Reporting by Roshan Abraham in Bengaluru; Editing by Nivedita Bhattacharjee)