DAVY VIEW

As the Bank of England has long been pre-occupied with price changes for services, April’s 5.4% annual result will encourage a more hawkish direction for Bank Rate. Market pricing has shifted away from a cut by September’s meeting which, until a week ago, had been priced in. This aligns with our view that above-expected economic growth, high wage growth and services inflation will mean just one further rate cut in 2025. Over the medium term, we expect that sustained divergence between higher interest rates in the UK compared to other economies could strengthen the pound.