Bank of England art

Deutsche Bank no longer sees the Bank of England cutting rates in May and instead views June as the start of the cycle. That will be followed by further cuts in Sept and Dec.

The three cuts this year is unchanged but they now see the BOE slowing to a quarterly pace in 2025, meaning four cuts instead of their previous forecast for six. Those final two cuts will be delivered in 2026 instead, ultimately bringing the terminal rate to the same 3%.

"Risks are skewed to a slower start and higher terminal rate, but asymmetric risks will likely build in a higher for longer world," DB writes.

They note that June could be pushed back further, particularly if private wages and services inflation remain high.

They note that the unemployment rate at 4.2% is below the MPC's central projection.

"The February labour market data painted a mixed picture. On the one hand, firms are shedding jobs faster than we expected, with the unemployment rate jumping from 3.9% in January to 4.2% in February. But on the other hand, wage growth is looking a little stickier than expected," DB writes.

Critically, they say that inflation risks are skewed to the upside, particularly in light of today's hotter-than-expected UK CPI data.

Today's inflation data came in a little hotter than the MPC expected (though broadly in line with our projections). Headline CPI slipped to 3.2% y-o-y (BoE: 3.1%). Core CPI dropped to 4.2% y-o-y (broadly in line with the Bank's projections). But crucially, services CPI edged lower by only a tenth to 6% y-o-y – sitting nearly two-tenths above the Bank's projection. Core services (excluding, non-private rents, airfares, and accommodation) moved only marginally lower to 6.1% y-o-y (from 6.2% y-o-y). For the MPC looking for further evidence that price pressures are convincingly moving lower, today's data may not move the dial in assuaging fears that price momentum is receding in line with the Bank's forecasts.