Yahoo Finance Pound rises against dollar as Bank of England expected to cut interest rates by May
The pound (GBPUSD=X) was up 0.2% against the dollar on Monday as the Bank of England (BoE) looks set to cut UK interest rates from as soon as May. Against the euro (GBPEUR=X) was was up almost 0.3% on the day.
Policymakers are likely reduce rates to 4.25% by the end of next year, according to investment bank Morgan Stanley (MS).
The news will come as a welcome boost to mortgage borrowers who have seen their payments soar.
In a note to clients, Morgan Stanley said they expected the UK to be in a technical recession by the end of the year, with the economy shrinking by 0.1% in 2024 before growing by 1% in 2025.
Meanwhile, financial markets are currently predicting that rates will have been cut to 5% by next June.
It comes as Threadneedle Street held interest rates at 5.25% for the second consecutive meeting at the beginning of the November as inflation eases, having raised them 14 consecutive times before from record lows of 0.1%.
The next UK inflation report is due on Wednesday. Economists have predicted that the Consumer Prices Index will drop to around 5% for October, down from 6.7% in August and September, as price pressures ease.
Last week, BoE chief economist Huw Pill warned that higher interest rates for a sufficiently longer period to tame inflationary pressures could result in an excessive slowdown in the economy.
Read more: LIVE: Wall Street dips ahead of inflation data but FTSE keeps gains
However new data on Friday showed that the UK economy avoided recession, flatlining in the third quarter of the year.
Gross domestic product (GDP) rose by 0.2%, showing no change from August's figures, according to the National for National Statistics (ONS).
Despite the weak figures, the UK economy managed to avoid a recession this year, which is defined as two consecutive quarters of negative GDP. Economists had predicted that the economy would shrink by 0.1%.
Overall, the impact of high interest rates and inflation weighed on consumers and businesses. The services sector shrank slightly, while construction expanded slightly.
Watch: How does inflation affect interest rates?
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