When can we expect the Bank of England to make a move with its interest rates?

The Bank of England interest rates are expected to change in May 2024, as indicated by current market prices.

This potential change may involve a reduction in interest rates, which would be favorable for mortgage holders. 

Following a string of below-par economic data in the past three months, investors are now estimating a 50/50 chance of a rate cut in May. 

However, it's important to note that there are considerable risks of potential letdown.

The information comes from the Overnight Index Swaps (OIS) market, a tool investors use to protect against future shifts in the cost of borrowing. 

The interest rate index suggests that market participants anticipate up to 80 basis points of reductions in 2024, equivalent to over three 25 basis point reductions. 

Expectations have dropped notably since August, when investors were estimating the peak of the bank's interest rate to be close to 6.5%. 

These projections are impacting current lending rates, leading to mortgage loans reaching their highest levels in many years.

UK data has recently become less optimistic, leading to reduced lending costs. 

Inflation and retail sales figures for October fell below market predictions last week, signaling a slowing economy. 

This has also led to the belief that the Bank of England has already raised interest rates sufficiently to curb inflation. 

Goldman Sachs economists estimate a 10% chance of further interest rate hikes and anticipate that the Bank of England will probably refrain from doing so until the third quarter of 2024.

But Pantheon Macroeconomics is strongly convinced that the Bank of England will cut interest rates in May. They predict substantial cuts of 75 basis points next year, followed by an additional 100 basis points in 2025. They believe this will lead to a decrease in mortgage interest rates. However, mortgage holders are understandably cautious. 

If the markets incorrectly interpret the peak interest rates of 6.5% in the middle of the year, they could make the wrong predictions again.

In response to these concerns, Megan Green, a member of the Monetary Policy Committee at the Bank of England, made a clear statement last Thursday. 

She emphasized that the market has not received a message indicating that interest rates will remain high for an extended period. 

Green seemed to directly address the market's expectations of rate cuts in May. In an interview, she remarked, "The idea that the long-run neutral rate might be a little bit higher and the natural rate of unemployment might be a little bit higher is not something that everyone is grappling with."

Green's perspective aligns with other economists who are warning about the impact of higher pay rises in Britain on the economy. 

They argue that these increases will keep core and service sector inflation elevated, affecting interest rates.