Are we expecting BOE to remain at 4.75% on 8th February 2025?

RelievedSheff

RelievedSheff said:

A cut is pretty much nailed on next month.

Given the market reaction to the budget, I have changed my mind and expect a hold on rates this week.

lojo1000

Here's how 5y yields are performing since the BoE cut rates 25bps on Aug 1. Similar effect in US.

Why are longer term rates going up if central banks are cutting rates?

With inflation still yet to fall below target and central banks reluctant to cut too fast with inflation still in the system, govts are under pressure (politically) to expand their spending to juice GDP.

UK budget deficit is already 4.4% of GDP (US >6%). Bond investors need a higher return on their money if govts are going to spend, spend, spend.

LightFlare

I think it depends on who wins the US election and how the markets react as to what happens to rates this month

Hoenir

LightFlare said:

I think it depends on who wins the US election and how the markets react as to what happens to rates this month

Doesn't really matter who wins the US election. As yet neither candidate has addressed the structual issues that exist. To the outside world Trump potentially is the worse option. 

lojo1000

Hoenir said:

LightFlare said:

I think it depends on who wins the US election and how the markets react as to what happens to rates this month

Doesn't really matter who wins the US election. As yet neither candidate has addressed the structual issues that exist.  

Agreed. Both candidates will use debt to spend. Trump will give to business classes and Harris to working classes but same result.

If Trump wins, equities rally and then sell off in subsequent weeks. The converse with a Harris win or no clear result, equities fall and then recover in following weeks. But would I bet on it? No.

MattMattMattUK

It is not about who wins directly, it is about the political turmoil/violence that may result in. If the US starts to tear itself apart over the result then that causes issues in the financial markets, it causes uncertainty which is always worst than bad but known to be bad etc. If Trump loses and tries to start another insurrection, spends the next year undermining democracy then that will be far more disruptive than the result itself. If he loses and says "Ok, never mind, off to play golf" then it will have far less of an impact. 

lojo1000

For context, ever since Greenspan discovered you can eat more if you loosen your belt, the US economy has been slowly dying.

Hoenir

Should add I wouldn't be surprised by a 0.25% BOE cut this month. 

lojo1000

Don't forget, BoE is cutting in the face of rising yield curve hoping to expand the money supply when markets are already telling them, "That's enough".

Hoenir

Money supply is contracting. QT is draining the excess out of the system. Only around 50% of banking activity globally is regulated. There's also the unregulated world of shadow banks.