When we talk about rate cuts, it seems to be all about ‘disappointment’ these days. Understandably so: interest rates were cut later and by less than we expected last year. At the end of 2023, market pricing suggested that interest rates should have fallen to 4.5 per cent in the UK and 3.5-3.75 per cent in the US by now. At 4.75 and 4.25-4.5 per cent, they remain stubbornly higher.
This slow pace is set to continue. The changes introduced in the Autumn Budget and president-elect Donald Trump’s tax cut and tariff plans have led to higher inflation expectations on both sides of the pond. At the time of writing, traders expect just two quarter-point cuts in the UK this year, and aren’t convinced that the Fed will even make one in the US. Even the most optimistic forecasts from economists (more on these later) place us miles away from the heady days of zero interest rates and copious amounts of quantitative easing (QE).