The Bank of England's policy announcement on Thursday will bring a further cut of 25bps -- the third so far this cycle -- taking Bank Rate to 4.50%, predicted Daiwa Capital Markets.
As in November, the bank expects eight of the nine Monetary Policy Committee members to vote for the cut, with only the external hawk Catherine Mann preferring no change.
The rate cut will be justified by the updated projections, which will significantly downgrade the United Kingdom's gross domestic product growth outlook to reflect the recent flatlining of economic output and tightening of financial conditions, stated Daiwa.
So, while the inflation outlook for this year will be revised up, the bank predicts it also to suggest increasing risks of undershooting the 2% target over the medium term.
Given the significant increase in two-sided risks to the inflation outlook posed by political developments in the United States, the MPC's updated forward guidance should continue to point to ongoing 'gradual' monetary easing this year -- which Daiwa interprets as representing one 25bps rate cut per quarter -- and a terminal rate that is lower than currently priced by the OIS markets.
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