Hopes of a summer interest rate cut mounted yesterday after dismal official figures showed the economy shrank by a bigger-than-expected 0.3 per cent in April.
Experts said the setback added weight to the case for a reduction in August.
Rate-setters meet next week but few think a cut will come that soon. Markets are now betting a summer cut will be the first of two this year, taking the Bank of England rate down to 3.75 per cent.
Some economists think the Bank will move faster in what would be a welcome boost for millions of borrowers with mortgages.
Experts at Bank of America said: ‘We continue to expect cuts in August, September and November.’
Morgan Stanley researchers said more evidence of weakness in the economy looks ‘likely to materialise’ over the second half of the year ‘and we expect a rate cut in August, and year-end rate at 3.25 per cent’.
Borrowing boost: Markets are now betting a summer interest cut will be the first of two this year, taking the Bank of England rate down to 3.75%
The gross domestic product (GDP) contraction for April was worse than the 0.1 per cent dip forecast by economists. It was blamed on Labour’s national insurance hike, which took effect that month, as well as Donald Trump’s tariff wars.
Another factor was the end of the stamp duty holiday, which supercharged businesses linked to housing in March but which then saw activity fall off afterwards.
The downturn took the wind out of Labour’s sails after Britain enjoyed GDP growth of 0.7 per cent in the first quarter.
Chancellor Rachel Reeves admitted the figures were ‘clearly disappointing’.
And they added to the gloom after data this week showed that more than a quarter of a million jobs have been lost since her tax-raising Budget in the autumn.
Elizabeth Martins, senior UK economist at HSBC, said the GDP figures were consistent with a small contraction in the second quarter.
‘It’s not that the economy is heading to recession: this data just strengthens the view that the apparent acceleration in the first quarter was probably too good to be true,’ she said.
‘This probably adds to the case for an August cut.’
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