LONDON – Traders are betting the Bank of England will cut interest rates further this year after weak retail sales added to a series of surprising data this week.

The Office for National Statistics said on Friday sales fell 0.3% month-on-month in December, compared with forecasts in a Reuters poll of economists for a 0.4% rise.

Nicholas Found, head of business content at consultancy Retail Economics, said “cautious spending” dominated over the festive period, adding that the figures showed the ongoing impact of the cost of living crisis on consumer behaviour.

After Friday’s news, the market expects the Bank of England’s current key interest rate of 4.75% to be cut by more than 75 basis points throughout 2025. That compares with expectations for a rate cut of about 65 basis points the day before, but the rate cut later on Friday eased back to 70 basis points. The next central bank meeting will be held on February 6, and the market is generally expected to cut interest rates by 25 basis points.

Disappointing retail data added to Britain’s bleak economic picture and added to the challenges facing Finance Secretary Rachel Reeves. She has made restarting economic growth and cutting the country’s debt-to-GDP ratio her main focus as she enters her first full year in office.

Earlier this week, the Office for National Statistics announced that the UK economy Growth was only 0.1% in November and stalled within three months. At the same time inflation The decline exceeded expectations to 2.5%and also increased market bets on the extent of interest rate cuts by the Bank of England this year after 2024. reduced by half a percentage point.

Complicating things further for Reeves, he announced Large-scale tax increase package Late October aims to reduce deficit, following recent volatility in global bond markets, which is also felt strongly in the UK Borrowing costs fell this weekThis month, long-term debt premiums have risen to a 27-year high, and short-term yields have risen to their highest levels since the financial crisis.

This leads to the following prospect higher mortgage rates and questioned whether Reeves would make further announcements Raise taxes or reduce public spending to meet her own fiscal rules.

Craig Inches, head of rates and cash at Royal London Asset Management, said: “It’s a real challenge for the UK economy at the moment… You look at UK bond yields and they’re Very high.” European Road Signs on Friday.

“One of the reasons is that the UK base rate remains significantly higher than in many markets around the world, so when you talk about what the Bank of England is likely to do at the February meeting, we absolutely think they should cut rates and our forecast is that they have to cut rates this year Four times.”

Investec chief economist Philip Shaw said in a report on Friday that retail sales are particularly volatile around Christmas, with the monthly slump during the festive period in December 2023 almost completely offset by a rise in January. twist.

“The market doesn’t seem to be in a mood to trust the UK at the moment,” Shaw added, noting that sterling fell against the euro and dollar on Friday.