Citi is now in agreement with Goldman Sachs about the Bank of England’s (BOE) decision on bank rates. Both firms believe that the BOE will not cut rates in September. Instead, Citi expects the BOE to keep the current bank rate steady this month. They predict that the central bank will start reducing rates from November this year until March next year.

Strategy Revision

With both Citi and another large firm delaying their rate cut predictions, we need to adjust our strategy. We should now assume that the Bank of England will maintain rates at 5.25% throughout the summer. This means we need to quickly unwind or hedge any positions that were set for a September rate cut. This updated perspective is backed by new data showing ongoing price pressures. The Office for National Statistics reported that UK services inflation was 5.7% in May, a rate too high for policymakers to begin easing monetary policy. This persistence in a key area is why forecasts are being pushed from September to November. We’re already noticing this change in the market, with SONIA futures indicating less than a 40% chance of a cut in September. This is a significant shift from last month, when a cut seemed almost certain. Traders who adapt to this new situation quickly will be in the best position to profit from the market changes.

Options Trading and Currency Implications

For those involved in options trading, it’s important to adjust strategies right away. Any call options based on a September rate cut have lost considerable value. Instead, we should focus on positions that benefit from stable rates or increased volatility leading up to the November meeting. This change in outlook is also providing support for the British Pound in the short term. The expectation that UK rates may remain higher for longer than those in the Eurozone or the U.S. makes Sterling more appealing. Therefore, we should be cautious about taking significant short positions against the currency in the coming weeks. Historically, the central bank has been very cautious about cutting rates while wage growth is strong. They worry that acting too soon might lead to persistent inflation. With private-sector wage growth still above 5%, policymakers are likely recalling times when they had to backtrack after easing rates too early. This caution is now the market’s main expectation until at least autumn. Create your live VT Markets account and start trading now.

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