Bank of England to cut rates nine times – new analysis

Last week, the Bank of England made its first rate cut in over four years, yet the move barely made a ripple in the market. Instead, investor attention seemed focused on the US Federal Reserve’s decision to maintain its borrowing rates, overshadowing the BoE’s actions.

However, this might not be the last opportunity for the BoE to influence market sentiment. Analysts at Deutsche Bank anticipate that the Bank of England’s Monetary Policy Committee will reduce rates nine times over the next two years, marking one of the most extended periods of rate cuts in recent history.

“Our assumption rests on a smooth and gradual path back to neutral. It’s clear that there are risks to this view, however,” Deutsche Bank cautioned. They further elaborated: “One, we could see a faster convergence back to our estimate of neutral (which we see as 2.75% to 3.25%) driven by a faster drop in inflation. Two, short-term neutral ends up being a lot higher than we expect, resulting in a shallower rate-cutting cycle (and higher terminal rate).”

The backdrop to this economic forecast is a housing market that appears to be regaining strength as lenders start to slash mortgage rates in a rapidly accelerating war for market share. Earlier today, Bellway, a prominent UK housebuilder, reported a resurgence in consumer confidence, largely due to lower mortgage rates and stabilizing consumer price inflation. As a result, Bellway surpassed its housebuilding targets, completing 7,654 homes in the year to July 31, exceeding its goal of 7,500 homes.

Bellway’s CEO, Jason Honeyman, expressed optimism about the future, stating: “We are encouraged by the new government’s plans to increase the supply of new homes across the country and welcome its plans to reform the planning system.” The company’s forward order book has also grown significantly, reflecting the increased demand fuelled by these favourable conditions.

The broader housing sector has felt this momentum as well. Shares in Bellway and other housebuilders, such as Barratt and Persimmon, saw gains, buoyed by the recent interest rate cut, improved affordability, and the potential easing of planning regulations. Richard Hunter, head of markets at Interactive Investor, noted that these factors have worked in favour of the housing sector recently.

Bellway’s positive performance comes amid ongoing discussions to acquire its smaller rival, Crest Nicholson, signalling confidence in the market’s future despite the challenges ahead. The housing market’s recovery, supported by lower borrowing costs, seems poised to benefit from the anticipated series of rate cuts by the Bank of England, potentially setting the stage for sustained growth.

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