Bank of America has changed its forecast for the Bank of England’s interest rate cuts. They now predict two cuts, one in August and one in November, and have removed their previous prediction for a September cut. This change comes after Goldman Sachs and Citi also updated their forecasts by canceling expectations for a September rate cut. Bank of America believes the Bank of England’s final interest rate will be 3.50%.

BoFA’s Unique Perspective

In contrast to other banks, Bank of America thinks the next rate cut will happen in February of next year. They don’t expect any consecutive rate cuts from the Bank of England after November. It’s clear that major banks, now including Bank of America, are revising their predictions for a September interest rate cut. This reflects a shift in sentiment similar to what firms like Goldman Sachs and Citi have shown. The new consensus points toward fewer and more spaced-out cuts this year. This change is due to recent economic data. UK services inflation stayed high at 5.7% in May, despite the overall rate dropping to the 2% target. Persistent price pressures and annual wage growth near 6% are making policymakers cautious, making quick cuts less likely.

Market Reactions and Strategies

The derivative markets are already responding to these new predictions. The likelihood of an August rate cut is now below 50%, and a September cut is almost completely ruled out. Investors should adjust their positions in SONIA futures and options to reflect a “higher-for-longer” rate environment throughout the autumn. These instruments are likely to show that the first full 25-basis-point cut won’t happen until the November meeting. Given this situation, we should think about strategies that could benefit from this expected pause, like selling interest rate options that would only pay out if a September cut occurs. Historically, central banks tend to follow “stop-start” easing cycles when inflation stays stubbornly high. This pattern supports the forecast from Bank of America for a long pause following a potential November cut until February of next year. Create your live VT Markets account and start trading now.

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