DAVY VIEW

The UK economy continues to exhibit disinflationary trends. The economy grew by less than expected in Q4; the labour market continues to loosen as wage growth declines rapidly; and consumer price pressures look set to fall materially as the year progresses. Despite this, market pricing currently indicates just two cuts to Bank Rate by the Bank of England this year. As things stand, we think at least three cuts are more likely. This is based on the Monetary Policy Committee’s demonstrated willingness to err on the side of rate cuts last year, even when conditions often appeared to be far less disinflationary.