Institutions predict the UK will restart interest rate cuts in 2027

(1) Analysts at ING released a report stating that if the peace agreement between the US and Iran is successfully implemented and remains effective, the Bank of England is likely to pause its rate hikes this summer.(2) With current energy prices declining, the market estimates that UK inflation may remain below 4%, which is the key inflation threshold for the Bank of England.(3) Market pricing shows the probability of a Bank of England rate hike in July is only 25%, and there may be just one rate hike throughout the year. Previously, the market had expected up to three rate hikes in 2024.(4) The report points out that the risk of a second-round inflationary chain transmission effect in the UK is low, which is the main reason institutions expect the central bank to restart rate cuts in 2027. The current market has not fully priced in this expectation for rate cuts.