UK Traders Anticipate Interest Rate Cuts

UK traders are leaning towards the likelihood of three interest rate cuts from the Bank of England this year, prompted by disappointing retail sales data that calls for stronger easing measures to boost the struggling economy.

Rise in Government Bonds

Government bonds, known as Gilts, experienced an increase, with the 10-year yield decreasing by six basis points to 4.62%, marking a decline of over 20 basis points this week.

Decline of the Pound

The pound fell by 0.6% to $1.2161 following the announcement of the retail data, nearing its lowest point since November 2023. Earlier in the week, traders had anticipated only one rate cut.

Unexpected Drop in Retail Sales

UK retail sales saw an unexpected decline during last month’s crucial Christmas period, further harming the economy and rattling investor confidence. This evident from data showing inflation growth was slower than expected earlier this week.

Difficulty in Investor Confidence

According to the latest Bloomberg Markets Live Pulse survey, the struggling UK government is expected to face challenges in restoring investor confidence. The survey indicates that the downward trends for gilts and the pound are likely to persist.

Market Predictions

Following stock market downturns at the beginning of 2025 due to rising concerns over debt and inflation, 51% of 250 surveyed market participants expect the pound to drop to between $1.20 and $1.15 by the end of June, potentially reaching its lowest level in over two years.

Additionally, 70% of respondents believe the 10-year gilt yield will exceed 5% this year, up from around 4.7% on Thursday, aligning with US yield expectations.

This survey presents a bleak outlook for UK Chancellor of the Exchequer Rachel Reeves, as gilt yields reach their highest levels in over 25 years, stock values plummet and the pound dives.

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