Bank of England Holds Rates, Signals Cuts on the Horizon

The Bank of England (BoE) held its latest Monetary Policy Committee (MPC) meeting on Thursday with interest rates maintained once again at 5.25%[1]. But Governor Andrew Bailey gave his strongest hint yet that an easing of policy is on the horizon, the Governor noting in his post meeting press conference that it is likely that rates will be cut in the coming quarters and “possibly more so than is currently priced into markets”. Two of the nine strong MPC voted to increase rates immediately last week, an increase of one on the prior meeting. And whilst the Bank upgraded its forecasts for economic growth over the remainder of the year, its view is that the improvement in performance would not be inflationary. The output from the meeting led to some commentators raising their expectation of a June rate cut, albeit that prediction is reliant on the next inflation print being a favourable one.

Generally speaking, equity markets remained in a buoyant mood last week. The FTSE 100 and FTSE 250 rose by +2.7% and +2.4% respectively with investors taking comfort from the MPC meeting. US indices edged back towards record levels after a third straight week of positive momentum, the S&P 500 concluding Friday’s trading +2.2% higher (in dollars). Back in Europe, the MSCI Europe ex UK benchmark advanced by +3.5% with German, French and Italian specific indices having all now moved into double digit returns for 2024 so far. Returns in Asia were mixed with the Nikkei 225 in Japan shedding -1.6% (in yen). The prospect of another rate increase by the Bank of Japan to combat the ailing yen likely weighed on sentiment. As for China, local indices made further ground as they continued their recent recovery. The Shanghai Composite rose by +2.2%, helped by strong data relating to consumer spending during the Labor Day holiday.

Moving to commodities, gold rose by +3.0% to $2,362 an ounce. The strong momentum seen by the precious metal over the past three months has been largely led by significant demand coming from Asia. Oil was largely flat having faced significant selling pressure during the prior week. Brent Crude rose by +0.2% to $83.67 a barrel in what was the first weekly gain since mid-April. Copper also edged higher with the metal rising by +1.1% to $9,898 a tonne on concerns relating to future supply shortages.

Week Ahead

Day	Country	Measure	Period	Forecast	Previous
Monday	N/A	-	-	-	-
Tuesday	UK	Average Weekly Earnings YoY	March	5.50%	5.60%
	UK	Unemployment Rate	March	4.30%	4.20%
	US	Producer Price Inflation YoY	April	2.20%	2.10%
Wednesday	Europe	GDP Flash Estimate QoQ	Q1'24	0.30%	0.30%
	Europe	Industrial Production YoY	March	-1.80%	6.40%
	US	CPI Inflation YoY	April	3.40%	3.50%
	US	Retail Sales MoM	April	0.40%	0.70%
Thursday	Japan	GDP QoQ	Q1'24	-0.40%	0.10%
Friday	China	Retail Sales YoY	April	3.90%	3.10%
	China	Unemployment Rate	April	-	5.20%

Source: Refinitiv Workspace, 13/05/24

[1] Bank of England – Monetary Policy Summary May 2024

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