Even though we expect the economy to be weaker than the consensus in 2024, we think that lingering constraints on domestic supply will prevent wage growth and services CPI inflation from falling quite as fast as is widely expected. As a result, we think the Bank of England won’t cut interest rates until late in 2024, which would be later than the Fed, the ECB and current market pricing of mid-2024. But the prospect of more rate cuts in 2025 than is priced into the market explains why we think 10-year gilt yields will fall from 4.00% to 3.50% by the end of 2024 and the pound will weaken from $1.26 to about $1.20.
Note: We’ll be discussing the Fed, ECB and Bank of England December decisions and the policy outlook for 2024 in an online briefing on Thursday, 14th December. Click here to register for the 20-minute session.
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