UK Election Kills Chance of June Rate Cut, Ex-BOE Official Says

(Bloomberg) -- Former Bank of England policy maker Michael Saunders said the prospects of an interest rate cut in June are dead for now but that markets are probably under-pricing the chances of a reductions later in the year.

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The senior adviser to Oxford Economics said a stronger-than-expected inflation reading published Wednesday made central bank officials highly unlikely to move next month. The government’s decision to call an election reduces those slim chances even further.

“They themselves wouldn’t want to be a cause for volatility,” Saunders said Thursday in an interview on Bloomberg TV of the BOE’s Monetary Policy Committee. “The MPC would be especially reluctant to do a surprise rate change during an election campaign. But in practice, a June rate cut is already ruled out by inflation figures.”

A cut to rates in June would be the first move made by the BOE in 10 months and a surprise to markets, which yesterday slashed the odds of a move next month. Saunders said the first cut is likely to come in August, after the election on July 4 delivers a new government.

While another set of price data is still to come ahead of the June meeting, Saunders doubted this would change anything. “They’d have to be extraordinarily good to bring an early rate cut back into play,” he said.

“I do think over the course of the year, markets may now be slightly underpricing the extent to which interest rates come down,” Saunders said on Bloomberg Radio. “I would still say that three rate cuts, and the first one not until August, and then a couple more later in the year.”

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