Investing.com — UK traders are now leaning towards the possibility of three interest rate cuts from the Bank of England this year, following disappointing retail sales data which strengthens the argument for a more assertive easing to uplift the faltering economic growth.
Government bonds, or Gilts, saw a rise, with the 10-year yield dropping six basis points to 4.62%. This denotes a decline of over 20 basis points this week.
The pound also experienced a decline, falling as much as 0.6% to $1.2161 after the data was released, approaching its lowest level since November 2023. Earlier this week, traders were only fully pricing in one rate cut.
UK retail sales experienced an unexpected drop during last month’s key Christmas period, dealing another blow to the economy and shaking already fragile investor confidence. This report came after data earlier this week revealed that inflation growth was slower than anticipated.
The beleaguered UK government is predicted to face difficulty in regaining investor confidence, as per the latest Bloomberg Markets Live Pulse survey. This survey suggests that gilts and the pound are likely to continue their recent downward trend.
Following a downturn in the UK markets at the start of 2025 due to increasing concerns over debt and inflation, 51% of 250 market participants surveyed this week anticipate the pound to fall to between $1.20 and $1.15 by the end of June. This could potentially take the currency to its weakest level in over two years.
In addition, 70% of respondents predict that the 10-year gilt yield will rise above 5% this year. This is an increase from around 4.7% on Thursday, but it aligns with expectations for US yields.
This survey paints a grim picture for UK Chancellor of the Exchequer Rachel Reeves, as gilt yields have surged to their highest in more than a quarter-century, stocks have fallen, and the pound has plummeted.
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