The Bank of England today prepares to announce its latest monetary policy decision at noon UK time, but for once interest rates are not on everyone’s mind.
The BoE is widely expected to leave Bank Rate unchanged at 4%, a day after UK inflation remained painfully high over its target at 3.8%.
“While the rate cut machine has whirred back into action for the US, it’s expected to remain idle in the UK for a bit longer,” says Russ Mould, investment director at AJ Bell.
“Central banks have a key focus on two things: inflation and the jobs market. They raise interest rates if inflation or the economy are looking too hot and cut if the economy needs a pick-me-up or if inflationary pressures are easing and they need to rebalance to more normal rate levels.
“The Fed has been watching inflation like a hawk amid a sharp rise in tariffs. So far, inflation hasn’t been too problematic, and its attention has shifted to the jobs market which is looking weaker.
“Financial markets had widely expected a quarter point rate cut, and investors got what they wanted. That’s lifted spirits and led to a decent showing across European equity markets, and futures prices imply the US will follow suit later today. Wall Street initially wobbled when the rate cut news was announced yesterday but quickly found its feet.
“Gold pulled back as investors removed some of their ‘just in case’ positions from portfolios and dialled up the risk. Oil prices also dipped slightly.
“The focus now shifts to what the Bank of England will do with UK rates, and the consensus is that it will do nothing at today’s meeting. Sticky inflation at elevated levels is a problem, meaning the Bank might feel it is prudent to continue that fight via keeping rates at relatively high levels, rather than loosening monetary policy like the Fed.”
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