Bank of England rate cuts to be 'earlier' and 'more than' Fed rate cut: Report

BoE rate cuts: Bank of England policymaker Megan Greene expressed the view that markets anticipate the central bank will initiate rate cuts earlier and by a larger magnitude compared to the Federal Reserve this year, asserting that a delayed approach to policy easing in Britain is more prudent, according to a report by the Financial Times on Thursday.

In an opinion piece titled "Markets must stop comparing the UK and the US", Greene highlighted the significance of the persistence of inflation as a greater concern for Britain than for the US.

"Following surprisingly strong US March CPI inflation, markets now expect the Bank of England will cut rates earlier and by more than the Federal Reserve this year," Greene wrote in her article published in the newspaper.

Greene stressed that, in her perspective, rate cuts in the UK should remain a distant prospect as well, underlining the challenges posed by inflation persistence.

Money markets are currently pricing in 56 basis points of interest rate reductions by the BoE in 2022, with a 52 per cent probability assigned to the first cut occurring in June, according to LSEG data. This projection exceeds the 44 basis points of US rate cuts anticipated by investors, with the initial Fed cut anticipated in September.

Greene pointed out stark differences in labour supply between the two nations, noting that UK services inflation persists significantly higher than in the United States.

"Overall labour market participation in the UK has not rebounded to the pre-pandemic trajectory. In contrast, participation in the US has surpassed the pre-COVID trend," she stated.

Greene further highlighted that heightened inflation expectations have translated into elevated wage growth in the UK, currently ranging between 6-7 per cent, compared to 4-5.5 per cent in the US She emphasized the necessity for wage growth to decelerate further to achieve sustainable levels of services inflation consistent with the target.

(With Reuters inputs.)