BoE stays on hold again
The Bank of England MPC left interest rates unchanged at 3.75%, as expected. Two (of nine) Committee members voted for an immediate 25bps increase, just one more than at the April meeting. Near-term rate hike expectations eased a little following the decision, though the market is still pricing in a 25bps increase by the end of the year. Sterling extended its post-Fed meeting slide against the dollar and also weakened a touch against the euro, while Andy Burnham’s decisive by-election victory – paving the way for a leadership challenge to Keir Starmer – is maintaining the pressure on the pound, which is trading at $1.32 and £0.8670 respectively this morning. The euro has also lost more ground to the dollar, and at around $1.1445 is now closing in on its year-to-date low of circa $1.1410 in mid-March shortly after the commencement of the war in Iran. News that talks between the US and Iran scheduled for today have been postponed will raise some concerns about the ‘deal’ signed by the two sides earlier this week, while also providing further support for the dollar (on top of a more ‘hawkish’ Fed).
There was some modest respite for US bonds yesterday, following Wednesday’s post-Fed meeting sell-off, with yields falling by 2-4bps across the curve, while German and UK yields both ended marginally higher on the day. US stocks rebounded after closing a good bit lower on Wednesday, led by the Nasdaq which gained almost 2%, while the Euro Stoxx 50 ended in positive territory (+0.4%) for a sixth consecutive session.
The Bank of England MPC kept policy on hold, as expected, noting that “global energy prices have fallen since the previous meeting in response to events in the Middle East”. It again highlighted the “risk of material second-round effects” from the energy price shock, but said “the labour market continues to loosen (and) signs of a weakening economy could contain inflationary pressures”. It also noted that “interest rates faced by households and businesses remain higher than prior to the conflict, which will act to reduce inflation over time.”
UK retail sales were stronger than expected in May according to data released earlier this morning, though the 1.2% increase in volumes last month followed a 1% decline in April. Looking over the three months to May, sales volumes were up 0.4% on the three months to February and were almost 1.5% higher than in March-May last year. Separately, consumer confidence was unchanged in June according to the GfK indicator, remaining marginally above its year-to-date low in March.
It is a quiet end to the week in terms of economic data, with little or nothing of note due for release, while US markets are closed for a public holiday so trading volumes will be lower than normal.