The week ahead 03 February 2025 - Bank of England rate cut expected
What to watch out for in the UK economy and property market this week.
With ample evidence amassed that the UK economy is in a slowdown, the Bank of England Monetary Policy Committee (MPC) meets this week with its interest rate decision to be announced on Thursday at midday. The consensus view is a cut of 25 bps is coming, mirroring the reduction last week by the ECB. A Base Rate cut would though put the UK at odds with the US Federal Reserve, which left rates unchanged at its latest meeting. This in part explains why the pound has been weakening against the US dollar lately, something which will have an inflationary effect. Nevertheless, we believe the MPC will conclude that fading growth is major a concern, so will tolerate slightly above target inflation in the short-term.
Last week saw the UK government announce further measures to boost growth, including the go-ahead for a third runway at London’s Heathrow Airport, plus improved transport links between Cambridge and Oxford with their world-famous R&D centres. There was also talk of reforming planning rules to accelerate building projects. Large infrastructure projects take a long time to get going. However, when considered alongside the new Downing Street initiative to promote investment in the UK artificial intelligence industry, it is clear economic growth has moved to the top of the government’s policy agenda, which is good news for the property sector.
The latest Nationwide House Price Index data showed growth continued in January, despite the recent uptick in mortgage rates. The annual rate of growth in January was 4.1%, down from a strong 4.7% in December. A deceleration was expected, although the consensus forecast was slightly higher at 4.3%. Separately, Bank of England data reported an increase in mortgage approvals from 66,000 in November to 66,500 in December. Overall, we feel the latest data is broadly encouraging, with price growth continuing through what is typically a quiet time of the year for the housing market.
As well as the Bank of England base rate decision, this week will see data on inflation from the Eurozone and the labour market in the US. We suspect these figures will re-enforce the recent picture emerging of the US economy outperforming Europe, in part thanks to a highly flexible jobs market. Also, parts of the Eurozone are missing the days of cheap energy and need to invest in infrastructure, which is a timely reminder on why the UK government are right to be on the front foot on capital investment.
This week’s figures
MONDAY 3 FEBRUARY
Euro Area Inflation Rate, January
2.5% previous
2.4% forecast
Recent economic data suggests the Eurozone is in the midst of a marked economic slowdown. The Q4 2024 GDP figures showed the bloc’s economy flatlined at the end of last year. Consequently, we believe inflation slowed in January.
THURSDAY 6 FEBRUARY
Bank of England Base Rate Decision, February
4.75% previous
4.50% forecast
In the face of mounting evidence the UK economy is struggling to grow as inflation eases, we are forecasting the MPC will cut the Base Rate by 25 bps. We are predicting the Base Rate to fall to 3.75% by the end of this year.
FRIDAY 7 FEBRUARY
US Non-Farm Payrolls, January
256k previous
210k forecast
The US labour market has seen robust employment growth in the last few months, although we believe January may have seen a step back from the upbeat recent figures.
