Bank view

Markets expect too many rate cuts, says MPC member

Catherine Mann sits on the Bank of England’s rate-setting committee

Markets may have got ahead of themselves in their expectations of interest rate cuts, says a member of the Bank of England’s rate-setting monetary policy committee (MPC).

Catherine Mann, an external member of the MPC, together with her colleague Jonathan Haskel, had called for a rise in interest rates until last week when both switched their positions to keeping rates on hold. It was the first meeting since September 2021 with no votes for higher rates.

The 8-1 vote, making it five in succession for interest rates to be held, further convinced markets that there will be at least three cuts this year, with some even suggesting four.

Bank of England governor Andrew Bailey added fuel to the rate cuts fire last week by telling the Financial Times he is confident that inflation is heading towards target and that Interest rate cuts are now “in play” for this year.

Ms Mann has told Bloomberg TV that markets were “pricing in too many cuts” and cautioned against growing expectations for a quicker loosening of policy.

“I think they’re pricing in too many cuts, that would be my personal view,” she said.

Despite Ms Mann’s caution, speculation has turned to which of the central banks will be the first to cut interest rates, with expectations that the Federal Reserve, the Bank of England and European Central Bank will act at about the same time.

Kathleen Brooks, research director at trading platform XTB, said last week’s market rally “was driven by news that central banks have shifted to a more dovish stance.

“The market now thinks that the first rate cut will come in June, and that there will be three rate cuts this year,” she said immediately after last week’s decision.



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