Chances of UK cut in interest rates slides further after Fed maintains rates

US policymakers indicated that it would not be appropriate to lower rates until they have greater confidence that inflation is moving sustainably toward the 2% target.

The Federal Reserve building

The chances of a cut in interest rates next week when the Bank of England meets on Thursday look increasingly unlikely after the Federal Reserve maintained rates at its target range at 5.25%-5.50% for the seventh consecutive meeting.

US policymakers indicated that it would not be appropriate to lower rates until they have greater confidence that inflation is moving sustainably toward the 2% target. It also indicated that only one cut would follow this year despite lower than predicted inflation numbers.

REMAINED FLAT

The news came after the Office for National Statistics in the UK reported that economic growth remained flat in April, following a 0.4% increase in March, also dampening hopes of a rate cut.

Sanjay Raja, Chief UK Economist at Deutsche Bank
Sanjay Raja, Chief UK Economist, Deutsche Bank

Economists surveyed by Reuters had anticipated this 0% growth, citing earlier indicators that wet weather had significantly impacted retail sales and construction output.

But Sanjay Raja, Chief UK Economist at Deutsche Bank, said in a client update: “The flat print for April is likely to be temporary.

“Furthermore, we anticipate that GDP will continue its upward momentum throughout the rest of the year. Our revised models project GDP growth of 0.3-0.4% quarter-on-quarter in the second quarter of 2024.”

RATE INCREASES

Yesterday a number of major mortgage lenders announced rate increases with Barclays increasing a number of deals by 0.15% and TSB increasing rates across its residential and buy-to-let ranges by up to 0.35%. Smaller increases by Leeds Building Society and Clydesdale Bank were also announced.

Justin Moy, Managing Director at Essex-based EHF Mortgages
Justin Moy, Managing Director, EHF Mortgages

Justin Moy, Managing Director at EFH Mortgages, told the Newspage news agency: “It feels like one lender has blinked and the rest have followed.

“Money markets haven’t increased excessively in the last week or so, in fact longer swap rates have fallen, so these increases may reflect activity from the end of last week.”

He adds: “At a typically busy time for home buyers, higher mortgage rates are the last thing borrowers and the property market need.

“The year started on a high but now the mortgage and property market, much like the weather, is unseasonally bad.”


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