Introduction: Bank of England decision today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Rishi Sunak’s hopes of a pre-election interest rate cut are likely to be dashed today, in one of the most politically sensitive monetary policy decisions in years.
The Bank of England will set interest rates at noon, and is widely expected to leave them on hold at 5.25%, a 16-year high.
Yesterday’s fall in inflation, back to the BoE’s 2% target, gives its monetary policy committee (MPC) a good reason to consider cutting rates, to take some of the pressure off borrowers.
However, policymakers will have noted, glumly, that inflation in the services sector is running much hotter, with prices up 5.7% in the last 12 months.
Sanjay Raja, Deutsche Bank’s chief UK economist, says:
While calls for an imminent rate cut will grow, given headline CPI’s descent to 2%, there’s likely to be growing concerns around the stickiness surrounding services inflation.
There may not be unanimity about today’s decision. At the last meeting, in May, two MPC members voted to cut rates, but were out numbered by their seven colleagues who voted for no change.
City economists expect another 7-2 split today, with Swati Dhinga and deputy governor Dave Ramsden expected to again push for a rate cut.
The minutes of this week’s meeting will also be published at midday, giving an insight into the Bank’s views about the health of the economy, and the prospects for growth and inflation.
Conservatives may be disappointed if the Bank leaves rates on hold again today, as some – such as former Cabinet minister Sir Jacob Rees-Mogg – have been calling for rate cuts this year.
An interest rate cut would, arguably, bolster Sunak’s claims that the economy has turned the corner.
But the Bank is likely to be concerned that inflationary pressures could still be lurking in the economy.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
First, services inflation remains high – perhaps too high near 6% – to let the BoE cut rates with a peace of mind as services make up around 80% of the British economy.
And second, consumer prices could rapidly rebound if natural gas market tightens as traders rush to replenish their stockpiles before winter.
As such, if the BoE doesn’t announce a rate cut today, it’s not because they don’t want to put their nose into the country’s political affairs with the upcoming general election, but it’s mostly because the underlying inflationary factors are not yet convincing enough to allow them to do so.
It’s a busy day for central bank news, with both Switzerland and Norway also setting interest rates
The agenda
-
7am BST: European car sales for May
-
8.30am BST: Swiss National Bank interest rate decision
-
9am BST: Norwegian interest rate decision
-
Noon BST: Bank of England interest rate decision
-
1.30pm BST: US housing starts for May
-
1.30pm BST: US weekly jobless data
Key events
It would be a major shock if the Bank of England changed interest rates today.
The money markets currently indicate that ‘no change’ is a 99% chance.
Mohamed El-Erian, chief economic adviser to Allianz, and president of Queens’ College, Cambridge, suspects the Bank of England may be cautious about signalling future interest rate cuts today.
Good morning.
The @bankofengland’s policy announcement today is widely expected to include no interest rate cut.
The main question is what policymakers signal about the possible future timing of the cut. I suspect this may be quite cautious.#economy #markets #centralbanks— Mohamed A. El-Erian (@elerianm) June 20, 2024
Currently, the money markets expect the first rate cut to come by November, with a second priced in by February 2025.
The Bank of England decision isn’t the only important event on the calendar today, of course…
As professor Andrew Angus of Cranfield School of Management, reminds us:
“While England football fans will be hoping for a good result on Thursday evening, the Bank of England won’t want to score any own goals earlier in the day. Expect the monetary policy committee to err on the side of caution, keeping interest rates unchanged.
While a good performance from England and Scotland in the Euros could energise the economy, many households are still reeling from stubborn inflationary pressures, meaning interest rates are now unlikely to fall until late summer.”
ING: Three rate cuts this year (probably not starting today)
Dutch bank ING predict the first UK interest rate cut will come in August, with a total of three cuts this year.
But having said that, ING’s developed markets economist, James Smith, suggests the markets may be underpricing the chances of a rate cut today.
He explains:
Investors reckon the Bank is highly unlikely to cut interest rates in an election campaign. We wouldn’t be so sure of that.
We don’t expect a rate cut, but markets are under-pricing the chances.
The good news for the Bank is that the issue of rate cuts has avoided becoming politicised in a way that it might do in the US presidential election campaign later this year, even if other areas of BoE policy (related to reserve remuneration) are coming under scrutiny.
Our takeaway from the last meeting in May was that June’s decision would be on a knife-edge, and that calculation probably hasn’t changed as much as markets might think. Governor Andrew Bailey, we felt, sounded like he would have voted for a rate cut in May had his committee been more on board with it. Still, our base case is a pause this month.
Introduction: Bank of England decision today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Rishi Sunak’s hopes of a pre-election interest rate cut are likely to be dashed today, in one of the most politically sensitive monetary policy decisions in years.
The Bank of England will set interest rates at noon, and is widely expected to leave them on hold at 5.25%, a 16-year high.
Yesterday’s fall in inflation, back to the BoE’s 2% target, gives its monetary policy committee (MPC) a good reason to consider cutting rates, to take some of the pressure off borrowers.
However, policymakers will have noted, glumly, that inflation in the services sector is running much hotter, with prices up 5.7% in the last 12 months.
Sanjay Raja, Deutsche Bank’s chief UK economist, says:
While calls for an imminent rate cut will grow, given headline CPI’s descent to 2%, there’s likely to be growing concerns around the stickiness surrounding services inflation.
There may not be unanimity about today’s decision. At the last meeting, in May, two MPC members voted to cut rates, but were out numbered by their seven colleagues who voted for no change.
City economists expect another 7-2 split today, with Swati Dhinga and deputy governor Dave Ramsden expected to again push for a rate cut.
The minutes of this week’s meeting will also be published at midday, giving an insight into the Bank’s views about the health of the economy, and the prospects for growth and inflation.
Conservatives may be disappointed if the Bank leaves rates on hold again today, as some – such as former Cabinet minister Sir Jacob Rees-Mogg – have been calling for rate cuts this year.
An interest rate cut would, arguably, bolster Sunak’s claims that the economy has turned the corner.
But the Bank is likely to be concerned that inflationary pressures could still be lurking in the economy.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
First, services inflation remains high – perhaps too high near 6% – to let the BoE cut rates with a peace of mind as services make up around 80% of the British economy.
And second, consumer prices could rapidly rebound if natural gas market tightens as traders rush to replenish their stockpiles before winter.
As such, if the BoE doesn’t announce a rate cut today, it’s not because they don’t want to put their nose into the country’s political affairs with the upcoming general election, but it’s mostly because the underlying inflationary factors are not yet convincing enough to allow them to do so.
It’s a busy day for central bank news, with both Switzerland and Norway also setting interest rates
The agenda
-
7am BST: European car sales for May
-
8.30am BST: Swiss National Bank interest rate decision
-
9am BST: Norwegian interest rate decision
-
Noon BST: Bank of England interest rate decision
-
1.30pm BST: US housing starts for May
-
1.30pm BST: US weekly jobless data
