Traders step up BOE rate cut bets but only slightly

<p>For some context, after the hotter-than-expected UK CPI data <a href="https://www.forexlive.com/news/uk-december-cpi-40-vs-38-yy-expected-20240117/" target="_blank" rel="follow">here</a> earlier this week, the bets were for around 111 bps worth of rate cuts for the year. So, it's not exactly a significant shift in expectations despite the abysmal retail sales data <a href="https://www.forexlive.com/news/uk-december-retail-sales-32-vs-05-mm-expected-20240119/" target="_blank" rel="follow">here</a>.</p><p>The first rate cut is still baked in for June while odds of a May rate cut are now at ~56% and that is not much changed from the ~58% after the inflation numbers on Wednesday. So, what does the retail sales data tell us about the UK economy and rates outlook?</p><p>It points to continued struggle among UK households and consumption activity. That hasn't been a surprise for many months now but it looks like we're not quite at a turning point yet. If anything, it tells the story that high inflation continues to weigh heavily on the UK consumer and that will remain a problem for the months ahead.</p><p>However, unless price pressures do ease, the BOE will have to try and balance things out and buy time for as long as they can before the economy cracks. The PMI data in December at least suggests that when you consider the economy as a whole, things are still holding up. So, they still have some room to work with before starting to feel desperate to turn to rate cuts – at least for now.</p>

This article was written by Justin Low at www.forexlive.com.