Markets Bring Forward Bank of England Rate Cut Expectations as Inflation Eases
Financial markets have significantly accelerated expectations for Bank of England (BoE) rate cuts after recent data showed inflation easing and softer labour-market indicators. MUFG analysis of derivatives and surveys finds the first cut has been brought forward by about three months since early 2025; traders now price a ~65% chance of a 25bp cut by the June 2025 MPC meeting (up from 35% in December 2024). Key data: headline CPI fell from 3.2% (Nov 2024) to 2.4% (Feb 2025), core inflation slipped from 3.5% to 2.7%, and services inflation and wage growth have moderated. MUFG’s model implies roughly 75bp of cuts priced into 2025, with a terminal rate near 4.5% by year-end. Market effects to date include lower gilt yields (especially 2–5yr), a ~2.5% weaker sterling vs USD, outperformance in rate-sensitive UK equities (real estate, utilities), falling mortgage rates (2-year fixes down ~30bp since January), and tighter corporate spreads. MUFG outlines three scenarios: base case — 75bp cuts starting June (60% prob.), accelerated — 100bp starting in May (25%), and delayed — 50bp from August (15%). Risks that could postpone easing include persistent services inflation, localized wage pressures, geopolitical commodity shocks, supply-chain disruption, or stronger-than-expected growth. For traders, the repricing matters for FX, gilt and swap curves, UK equities, mortgage-backed exposures, and credit spreads; attention should focus on upcoming inflation prints, wage data, and BoE communications for confirmation of the shift.
Neutral
Accelerated market pricing for Bank of England cuts is broadly neutral for crypto markets. Lower UK rates and weaker sterling can boost risk appetite — a bullish influence — but the story is UK-centric and small relative to global macro drivers that dominate crypto (US Fed policy, BTC-specific flows, regulatory news). Short-term, easing expectations may lift risk assets and increase inflows into equities and possibly crypto on improved risk sentiment; sterling weakness could shift capital into dollar or crypto as an alternative. Medium-to-long-term impacts are limited: global liquidity and US rate direction matter more for sustained crypto trends. Similar episodes (e.g., periods when major central banks signalled easing) have produced short-lived rallies in risk assets and crypto, followed by consolidation once the actual pace of cuts and growth data became clear. Traders should monitor BoE communications, UK inflation/wages data, gilt and swap curves, and cross-market flows (FX to crypto) for opportunistic trades, but not expect a decisive macro driver for crypto unless eased global policy (not just UK) follows.