‘Sterling fell by around 0.4%’ following the lower than expected inflation reading

The Pound fell in the aftermath of this morning’s inflation data, suggesting markets believe the Bank of England might ease monetary policy sooner.

Newspage asked experts whether they think a cut at the next meeting is likely or if Threadneedle Street will want to see inflation fall further before it cuts. Their views are below.

Prem Raja, Head of Trading Floor at Currencies 4 You commented: “Sterling fell by around 0.4% this morning following the lower than expected inflation reading.

“The main reason for this is that the closer inflation gets to 2%, the more likely it will be that the Bank of England looks to cut interest rates. Currently we are expecting one interest rate cut per quarter from the Bank of England so I would expect another cut in the coming months, but with inflation expected to rise again, I wouldn’t hold my breath on a rate cut imminently.”

Harry Mills, Director at Oku Markets commented: “Sterling fell by half a cent vs the dollar this morning after fresh data on the economy showed that the UK’s annual inflation rate eased from 3% in January to 2.8% in February.

“The release was in line with analyst predictions and will provide a catching-breath moment for the Bank of England, whose Monetary Policy Committee decided to hold interest rates steady at 4.5% this month ahead of the planned tax rises in April. The pathway for inflation to fall toward – and to – the BoE’s 2% target was always going to be bumpy, so these recent data are unsurprising. The Pound will likely face further pressure throughout today as Chancellor Rachel Reeves steps into the spotlight to deliver her Spring Statement.”

Tony Redondo, Founder at Cosmos Currency Exchange commented: “The Bank of England is in a tight spot. This morning’s 2.8% CPI figure may be a green light for the interest rate doves but it’s not 2% and core inflationary pressures could keep the hawks in play.

“A May cut may be on the table if the next data batch aligns but I suspect the Bank will hold fire for one more meeting to dodge a policy misstep.

“The swaps market is dovish today, pricing in 50-75 basis points of cuts by year-end, up from earlier forecasts, and the Pound’s feeling the heat. We will need to watch how the markets react to this afternoon’s emergency budget and gilt yields for the next clues. The currency markets are impatient by nature, but the Monetary Policy Committee loves a slow dance so islikely to play it cautious in May and sit on its hands.”

Rob Mansfield, Independent Financial Advisor at Rootes Wealth Management commented: “The Pound is likely to bounce around a bit today as pundits pore over ever word the Chancellor says in the Spring Statement. A lot is going to depend on how credible her plans are. Markets are looking for rates to come down but the Bank of England knows that if they cut too much, inflation could come roaring back. The Chancellor is on a sticky wicket and she’s facing some hostile bowling.”

Riz Malik, Independent Financial Adviser at R3 Wealth commented: “There is a strong chance of a 25 basis point cut in May, but it is not a slam dunk. Looking at the last voting record, the sentiment of the MPC members would have to shift significantly but the soft inflation print certainly helps.”