Goldman Strategists Like 4-to-1 Odds on Bank of England Rate Cut

LAGOS (Capital Markets in Africa) — A Bank of England rate cut next month is starting to look like an attractive outside bet.

A third national lock-down in the U.K. is the overwhelmingly positive sentiment on the vaccine rollout and threatening to drag the economy into a double-dip recession. As a result, expectations are rising the BOE will ease policy at its Feb. 4 meeting.

The widely held view that support is likely to come in the form of bond-buying leaves less than two basis points of rate cuts priced into the overnight index swaps market for next month. Analysts at Goldman Sachs Group Inc. like the 4-to-1 payoff on a surprise move.

“The possibility of a 10-basis-points rate cut taking the Bank rate to zero suggests positive risk-reward” in betting on lower OIS rates at the February meeting, strategists including George Cole wrote in a client note.

A BOE cut next month isn’t their base case: Goldman forecasts more incentives for banks to lend under the Term Funding Scheme and a faster pace of bond purchases. Even so, the U.K. yield curve is likely to steepen and front-end rates to remain supported since the central bank is due to release further research on negative interest rate policy, Cole wrote.

Source: Bloomberg Business News