#Monetary Policy Committee at the Bank of England

[timesofocean]

Turmoil in banking industry could be current biggest threat to global economy

New Post has been published on https://www.timesofocean.com/turmoil-in-banking-industry-could-be-current-biggest-threat-to-global-economy/

Turmoil in banking industry could be current biggest threat to global economy

London (The Times Groupe) – High interest rates, particularly in Europe, could pose the most immediate threat to the global economy due to turmoil in the banking sector.

Markets were shaken by the bankruptcy of Silicon Valley Bank (SVB) and Signature Bank in the US last month, as well as Saudi National Bank’s announcement that it would not be increasing its stake in Swiss-based Credit Suisse. interests interests  global economy

UBS, Switzerland’s largest bank, bought Credit Suisse with government assistance for 3 billion Swiss francs ($3.2 billion). times

As countries around the world struggle with a cost of living crisis and central banks have been raising interest rates to lower persistent inflation, the turmoil in the banking industry came at a bad time.

In an interview with Anadolu, Jon Danielsson, the director of the Systemic Risk Centre at the Department of Finance at the London School of Economics, explained that increasing interest rates to combat high inflation causes banks that have bonds and loans to lose value.

Early in March, SVB announced that it had sold its $21 billion bond portfolio at a loss of $1.8 billion. A discount of $16.5 billion was offered to First Citizens Bank for the deposit and loan portfolio of SVB after it was quickly closed by US regulators.

“When central banks raise interest rates, the aim is to slow growth. The fact that bond prices have fallen is part of the normal consequence when you raise interest rates a lot. That is a channel, the transmission of policy rates onto real activity,” Michael Saunders, a senior economic advisor at Oxford Economics and a former member of the Monetary Policy Committee at the Bank of England, told the Turkish state-run news agency Anadolu.

The US banks tightened lending standards before the recent strains in the banking system, reflecting higher interest rates and slower economic growth expectations, and those who failed had poor management.

[accapitalmarket]

Fed ruins Santa Rally, markets poised to recalibrate

US markets came under pressure as investors digested the US Federal Reserve’s hawkish shift on interest rates, revealed on Wednesday, and a raft of other central bank announcements made on Thursday.

Having, as expected, announced a 25-basis point (bp) reduction in interest rates to a target range of 4.25% at its final monetary policy committee meeting of 2024, Fed chair Jerome Powell hinted then that the US central bank will be slowing down the pace of rate cuts next year.

The number of US rate cuts now expected next year is just two, down from the previously guided four, with the Fed pointing to a new phase whereby cuts are less necessary given the strength of the underlying economy.

US data released pre-market on Thursday proved mixed. Fourth quarter GDP growth came in at 3.1%, a rise from 3.0% in the previous quarter, and above expectations for a fall to 2.8%. The higher-than-expected growth indicates a stronger and more robust economy than initially predicted.

Meanwhile, US initial jobless claims came in at 220,000 for the latest week, lower than the 229,000 forecast, indicating the labor market remaining robust.

But the Philadelphia Federal Reserve Manufacturing index dropped to a reading of -16.4, down from -5.5% and well below the forecasted number of +2.9, suggesting worsening conditions for manufacturers in the region.

On foreign exchanges, the dollar was cautious, losing 0.49% versus the euro at 0.9607 and down 0.22% versus the pound to 0.7936.

Sterling was otherwise mixed after the Bank of England, as expected, held UK interest rates at 4.75%, after recent economic data showing rising inflation and average wages caused concern, although three of the nine Monetary Policy Committee members had voted for another cut.

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The Bank of Japan also kept its interest rates unchanged at 0.25% at its last meeting of the year, pointing to a high degree of uncertainty for the business outlook, especially with regard to commodity prices and inflation generally.

Among commodities, oil prices were volatile after the Fed's hawkish rate shift, bouncing back after earlier falls as traders weighed up a weak demand outlook and solid supply factors.

US WTI crude was up 0.7% to $71.07 a barrel, while UK Brent crude added 0.5% to $73.36 a barrel.

Gold was weaker on the Fed caution, losing 1.6% to $2,599 an ounce. But Bitcoin found gains, up 2.1% to $102,263.

XAUUSD H1

On equity markets, after massive falls on Wednesday - when the blue-chip Dow Jones Industrial Average dropped 2.6%, the broader S&P 500 index shed 3.0%, and the Nasdaq Composite slumped 3.6% - the main US stock indexes were predicted to make a modest recovery on Thursday, with all three seen up around 0.8%.

Micron slumped 12.8% premarket after the chipmaker issued weak second-quarter guidance after the close Wednesday, disappointing investors despite earnings beat for the latest period.

But Apple edged up 0.1% premarket after reports said the tech giant is in talks with local partners, Tencent and ByteDance, about integrating their artificial intelligence models into iPhones sold in China.

Disclaimer:

The information contained in this market commentary is of general nature only and does not take into account your objectives, financial situation or needs. You are strongly recommended to seek independent financial advice before making any investment decisions.

Trading margin forex and CFDs carries a high level of risk and may not be suitable for all investors. Investors could experience losses in excess of total deposits. You do not have ownership of the underlying assets. AC Capital Market (V) Ltd is the product issuer and distributor. Please read and consider our Product Disclosure Statement and Terms and Conditions, and fully understand the risks involved before deciding to acquire any of the financial products provided by us.

The content of this market commentary is owned by AC Capital Market (V) Ltd. Any illegal reproduction of this content will result in immediate legal action.

[influencermagazineuk]

The Bank of England has opted to keep interest rates unchanged, citing persistent inflation concerns and signaling a cautious approach to future rate cuts. Despite this, the central bank revised its economic growth forecast for the final quarter of the year to zero, down from an earlier estimate of 0.3 percent. Txllxt TxllxT, CC BY-SA 4.0 https://creativecommons.org/licenses/by-sa/4.0, via Wikimedia Commons In a 6-3 decision on Thursday, the Monetary Policy Committee (MPC) maintained the benchmark rate at 4.75 percent. The majority warned that rising wages and prices increased the risk of inflationary persistence, limiting the scope for rapid monetary easing. Bank of England Governor Andrew Bailey stated, “We think a gradual approach to future interest rate cuts remains right. But with heightened uncertainty in the economy, we can’t commit to when or by how much we will cut rates in the coming year.” The central bank’s outlook reflects a challenging economic environment, with projections of stagnant growth and inflation concerns looming. UK inflation rose to 2.6 percent in November from 2.3 percent in October, while wages and the national living wage continue to rise, adding to employment costs. Some MPC members, including Deputy Governor Dave Ramsden, supported a quarter-point rate cut, citing weak demand and a softer labor market. However, the majority cautioned against rapid easing due to the risk of entrenched inflationary pressures. Sterling fell to $1.255 following the announcement, and gilt yields declined as investors reacted to the larger-than-expected number of MPC members advocating for immediate rate reductions. Markets are now pricing in two quarter-point rate cuts for 2025, a significant shift from expectations earlier in the year. The Bank of England’s announcement comes amid global economic uncertainty, including heightened geopolitical risks and ongoing trade policy challenges. With the chancellor facing a constrained fiscal position, the UK’s economic path remains fraught with challenges as policymakers strive to balance growth, inflation, and fiscal discipline. Read the full article

[boome11]

Stay informed with free updatesSimply sign up to the UK interest rates myFT Digest -- delivered directly to your inbox.The Bank of England has warned that stubborn inflation will prevent it from cutting interest rates quickly, as it kept monetary policy on hold despite downgrading growth prospects.In a six-to-three decision on Thursday, the Monetary Policy Committee maintained its benchmark rate at 4.75 per cent, with a majority expressing concern that recent increases in wages and prices had “added to the risk of inflation persistence”.Its move came even as the BoE predicted zero growth in the final quarter of the year — a downgrade from its previous forecast of 0.3 per cent — adding to the economic problems facing chancellor Rachel Reeves.In a reference to Budget measures that increased employers’ taxes and the national living wage, the central bank noted “significant uncertainty around how the economy might respond to higher overall costs of employment”.“Most indicators of UK near-term activity have declined,” it added on Thursday.“We think a gradual approach to future interest rate cuts remains right,” said Andrew Bailey, BoE governor. “But with the heightened uncertainty in the economy, we can’t commit to when or by how much we will cut rates in the coming year.”Traders expect the BoE to make two quarter-point rate cuts next year — the same as immediately before Thursday’s decision. That compares with the four the market expected as recently as October.Rob Wood, UK economist at Pantheon Macroeconomics, said the minutes of the MPC meeting were “cautious and therefore more hawkish than that six-to-three headline would suggest”.He said inflation was likely to rise above 3 per cent in the spring, “with highly visible price rises that could destabilise inflation expectations that are already above average and rising”.A majority of the MPC said that “recent developments added to the argument” for gradual rather than rapid rate cuts, warning of “the potential trade-off between more persistent inflationary pressures and greater weakness in output and employment”.The BoE’s downbeat language came a day after the US Federal Reserve signalled it would slow the pace of its rate cuts next year as it manages a more buoyant economy alongside signs of persistent inflation.It also followed data this week that showed UK inflation rose to 2.6 per cent last month, from 2.3 per cent in October.But the three MPC members favouring a quarter-point reduction — deputy governor Dave Ramsden, Alan Taylor and Swati Dhingra — cited “sluggish demand” and a weaker labour market.The BoE added that risks to global growth and inflation from geopolitical tensions and trade policy uncertainty had “increased materially” — an apparent reference to US president-elect Donald Trump’s plans to increase tariffs on imports to the US.Reeves’ allies said Britain faced a “very challenging period” but maintained that the chancellor was pushing through long-term reforms in areas such as pensions and planning to boost growth. But with inflation rising, growth stalling and confidence among employers falling, the chancellor enters 2025 with growing uncertainty over her fiscal plans. She has just £10bn set aside as a buffer against her own borrowing rules.If growth underperforms and interest costs remain higher than expected, Reeves could be forced to seek politically painful new spending cuts in the spring — or tax rises in the autumn — to make her fiscal plans add up.“We want to put more money in the pockets of working people, but that is only possible if inflation is stable,” she said on Thursday. “I fully back the Bank of England to achieve that.”Sterling and gilt yields fell after the rate decision, as investors focused on the larger-than-expected group of doves calling for immediate rate reductions.By late afternoon trading, markets ascribed a 15 per cent chance to a third quarter point-cut next year.The pound dipped to $1.255 after the BoE’s announcement, down slightly on the day. The yield on rate-sensitive two-year government bonds was down 0.03 percentage points to 4.43 per cent.The BoE cut rates by a quarter point at its previous meeting in November, but signalled at the time that another reduction was unlikely until 2025. It has cut rates twice in 2024 and is due to announce its next rates decision on February. https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2Ff2f64c47-05f2-49f8-afb4-56144ad29b7e.jpg?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 2024-12-19 16:21:51

[globalnews1]

The Bank of England pictured in December 2024.Sopa Images | Lightrocket | Getty ImagesLONDON — The Bank of England on Thursday ended its last meeting of the year with a decision to leave interest rates unchanged, after U.K. inflation rose to an eight-month high.Analysts had widely expected a rate hold at the December meeting, as policymakers remain concerned with stubborn services inflation and wage growth.The BOE has already taken its key rate from 5.25% to 4.75% this year in two quarter-percentage-point moves.In a deviation from expectations, three members of the Monetary Policy Committee voted to reduce rates, while six were in favor of a hold. Economists polled by Reuters had forecast only one member would vote to cut.Sterling pared gains against the U.S. dollar directly following the BOE announcement, trading 0.2% higher at 12:22 p.m. The greenback staged a broad rally on Wednesday after the U.S. Federal Reserve cut interest rates by a quarter point but signaled a more hawkish outlook for 2025. It gave up some gains on Thursday morning.Stock Chart IconStock chart iconGBP/USD.In a statement, the BOE said the increase in U.K. headline inflation in November to 2.6% was slightly higher than previously expected, adding that services inflation remained "elevated."BOE staff also downgraded their economic forecast for the fourth quarter of 2024, now predicting no growth, compared with the 0.3% expansion predicted in its November report. U.K. growth figures have come in weaker than expected in recent months, with the economy posting a surprise 0.1% contraction in October. Money markets this week pared back bets on the pace of further trims next year after the publication of data on inflation and summer wage growth, and are now pricing in roughly 50 basis points of upcoming cuts, down from an outlook of around 70 basis points' worth of cuts on Monday."The split vote decision and the dovish tone of the minutes suggest that a February interest rate cut remains very much in play, if not yet a done deal," Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said in emailed comments."The Bank of England risks backing itself into a corner over the pace of policy loosening because, with inflation likely to drift higher, the timing of future interest rate cuts could become increasingly complex, especially if stagflation fears become reality."This is a breaking news story and will be updated shortly.

[masr356]

Bank of England holds interest rates at 4.75% | masr356.com

Unlock the Editor’s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter. The Bank of England has kept interest rates on hold at 4.75 per cent, after inflation edged up in November. The Monetary Policy Committee’s decision, which was in line with forecasts from economists polled by Reuters, comes a day after the latest data showed that UK…

[leafatlas]

Bank of England holds interest rates at 4.75%

Unlock Editor’s Digest for free FT Editor Roula Khalaf picks her favorite stories in this weekly newsletter. The Bank of England kept interest rates at 4.75 per cent after inflation rose in November. The Monetary Policy Committee’s decision, which was in line with forecasts by economists polled by Reuters, came a day after the latest data showed UK inflation rose to 2.6 percent last month from…

[forexbankliquiditypro]

Forex Market Alert: Key GBP Events Today.

🚨 Attention traders! Major GBP market events scheduled for today could bring significant volatility. Here’s what to watch:

📌 Monetary Policy Summary — Provides insights into the Bank of England’s policy stance and economic outlook, crucial for GBP traders.

📌 MPC Official Bank Rate Votes — A breakdown of how committee members voted on interest rates, indicating possible future moves.

📌 Official Bank Rate — A critical interest rate decision that directly impacts the value of the GBP.

Stay prepared and adjust your trading strategies accordingly!

For expert trading insights and precise signals, visit Forex Bank Liquidity or connect with our community on Telegram.

[starseedfxofficial]

The Secret Sauce Behind Today’s Forex Market Moves When it comes to Forex trading, some days are all fireworks and drama; other days, it’s like watching paint dry. Today? Somewhere in between. While the market seemed to sip its morning coffee at a leisurely pace, a closer look reveals some intriguing moves beneath the surface. Let’s break it down—with insights, humor, and just enough edge to keep you ahead of the game. The Dollar Index (DXY): Playing Hide-and-Seek The DXY is like that one friend who can never decide on a restaurant. Stuck in a narrow 106.81-89 range, it’s treading water while awaiting this week’s “risk events.” Friday’s range (106.72-107.18) offered a smidge more excitement, but don’t let the calm fool you. Think of this as the market’s inhale before it takes a decisive breath. Keep an eye on geopolitical headlines and economic data—they’re the appetizers before the main course of volatility. Pro Tip: Low DXY movement often precedes sharp directional shifts. Position yourself accordingly, but don’t overleverage—you’re not betting on a horse race here. EUR/USD: Dancing Through Downgrades Imagine someone throwing a rock at a glass house, and the house doesn’t flinch. That’s EUR/USD today. Despite Moody’s surprising downgrade of France’s credit rating, the pair remains modestly firmer, waltzing around the 1.0500 handle. It’s flirting with Friday’s high of 1.0524, and with the 21 DMA at 1.0525 and a December 12th peak at 1.0530, this range is like a well-choreographed dance routine. Hidden Gem Insight: Watch for a clean break above 1.0530 for potential upside momentum. If it stalls here, it’s a signal for cautious scalping opportunities. GBP/USD: The BoE Tango If EUR/USD is dancing, GBP/USD is gearing up for a show-stopping performance. After falling from 1.2681 highs on Friday, it’s cautiously optimistic ahead of the Bank of England’s (BoE) rate announcement. With the Base Rate expected to hold at 4.75%, traders are eyeing every word the Monetary Policy Committee (MPC) utters. Will they signal a hawkish pivot or stick to their dovish guns? Contrarian Play: If the BoE surprises with hawkish commentary, expect a quick push higher. But if they hold and sound dovish, watch for retracement to Friday’s lows. USD/JPY: Riding the Yield Wave Overnight, USD/JPY showed a firmer footing as Asia-Pacific traders digested Friday’s rise in U.S. yields. The pair found resistance at 153.97, but don’t write off another push higher. Market sentiment leans toward the Bank of Japan (BoJ) maintaining rates this week, but the Federal Open Market Committee (FOMC) aftermath could shake things up. Advanced Tip: Watch for yield curve differentials. If U.S. yields climb further, expect USD/JPY to test and possibly break through resistance levels. Hedging your position with tight stops is a savvy move here. Antipodeans and the China Connection The Aussie (AUD) and Kiwi (NZD) are basking in the glow of positive Chinese Industrial Output data. The Chinese Stats Bureau’s optimistic tone (“stable economy” and “positive changes”) gave these currencies a minor boost. Meanwhile, the PBoC set the USD/CNY mid-point at 7.1882—a hairline change from the previous 7.1876—which hints at stability for now. Expert Insight: Stronger Chinese data often bodes well for the antipodeans. Pair this with U.S. risk events for a two-pronged trading strategy. Bonus: Keep an eye on Australian and New Zealand economic releases for confirmation signals. Stay Sharp, Stay Flexible Markets may appear subdued, but this is the quiet before the storm. Key risk events—from central bank decisions to economic data—will set the stage for big moves. Stay nimble, leverage expert tools, and always have a plan. And if today’s headlines teach us anything, it’s that patience pays. Sometimes, the best trade is the one you don’t take. —————– Image Credits: Cover image at the top is AI-generated   Read the full article

[politix0]

What are people saying about the Autumn budget? 

What are people saying about the Autumn budget?  Written by Alfie Rushfirth On the 19th November, Governor of the Bank of England, Andrew Bailey and other top Bank of England officials took questions from MPs in a parliamentary committee. This session was to focus on the Bank’s recent Monetary Policy Report, and the recent decision to reduce the interest rate by 0.25 percent to 4.75%, however…

[vagnocarvalho]

LIBRAS ESTERLINAS 🇬🇧

Bank of England (MPC: 8-1)

Rate maintained - September 2024

[accapitalmarket]

UK inflation drives UK100 higher, GBP flat ahead of FOMC

UK stocks edged higher on Wednesday as the latest inflation figures rose, and investors eyed the last policy announcement from the US Federal Reserve of 2025.

On foreign exchanges, sterling was essentially flat against the dollar at 1.2710 and a smidge lower versus the euro at 1.2107 after UK inflation notched up a second consecutive monthly rise.

The annualised consumer price index (CPI) rose to 2.6% in November, up from 2.3% in October, in line with expectations, but still the highest level since March this year. On a monthly basis, CPI rose by 0.1%, compared with a fall of 0.2% a year previously.

UK100 H4

Core CPI, which strips out the more volatile elements of energy, food alcohol and tobacco, rose by 3.5% in the 12 months to November, up from 3.3% in October but below forecasts for a rise to 3.6%.

Other data on Wednesday showed that UK house prices rose by 4.8% in 2024, according to a year-end report from mortgage lender Halifax, with the average house price reaching a record level of £298,083. Meanwhile, Office for National Statistics data showed the average UK house price increased by 3.4% in the 12 months to October, ticking upwards from 2.8% in September, with the average house price in October at £292,000.

The Bank of England meets on Thursday to make its latest decision on interest rates and is widely-expected to keep the cost of borrowing on hold. The bank’s Monetary Policy Committee (MPC) has trimmed rates twice this year but remains hesitant about sticky inflation.

Most eyes, however, were on the US rate decision, due to be announced at 7.00pm GMT. Most traders are expecting a 25 basis points cut by the Fed, which is fully discounted by the markets. Apart from the rate decision, market attention will be on the updated rate projections and comments from Fed chair Jerome Powell.

In London, around 2.30pm GMT, the FTSE 100 index was up 0.1% at 8,204, while the FTSE 250 index was ahead 0.4% at 20,623.

British Airways and Iberia owner IAG featured among the FTSE 100 gainers, adding 2.1% after analysts at Jefferies hiked their price target for the airlines group to 350p from 270p in a sector review.

Kingfisher edged up 0.5% as the DIY retailer announced the sale of its Brico Dépôt business in Romania to retailer Altex Romania for €70mln (around £58mln).

GBPUSD H1

But on the downside, National Grid shed 0.9% as the energy distributor released its RIIO-T3 Business Plan detailing investments of up to £35bn over a five-year period from April 2026. On the second line, Games Workshop – which will join the FTSE 100 index next week - added 0.4% as Warhammer games firm rewarded shareholders with an 80p-per-share dividend, bringing year-to-date returns to 265p, a substantial increase from the 195p paid out in the same period in 2023.

But among the FTSE 250 fallers, Transact platform owner IntegraFin dropped 9.7% as caution about rising administrative costs next year offset full-year results which showed a 17pc improvement in funds under direction to £64.1bn, driven by net inflows of £2.5bn.

And on AIM, discount shoe retailer Shoe Zone plunged by 42.2% as it warned on profits and said it had been forced to close some stores due to National Insurance changes announced in October’s UK Budget.

Disclaimer:

The information contained in this market commentary is of general nature only and does not take into account your objectives, financial situation or needs. You are strongly recommended to seek independent financial advice before making any investment decisions.

Trading margin forex and CFDs carries a high level of risk and may not be suitable for all investors. Investors could experience losses in excess of total deposits. You do not have ownership of the underlying assets. AC Capital Market (V) Ltd is the product issuer and distributor. Please read and consider our Product Disclosure Statement and Terms and Conditions, and fully understand the risks involved before deciding to acquire any of the financial products provided by us.

The content of this market commentary is owned by AC Capital Market (V) Ltd. Any illegal reproduction of this content will result in immediate legal action.

[riversfunding]

Signs of business confidence

In August, the Bank of England (BoE) lowered interest rates to 5% in the first cut since March 2020, an action which followed a fall in inflation to the 2% target set by The Monetary Policy Committee (MPC). In addition, the UK's economy grew by 0.6% between April and June, making it the second-best performer in the G7.

Read more - https://www.riversfunding.com/news/how-small-business-loans-could-help-businesses-capitalise-on-market-confidence/

[boome11]

Stay informed with free updatesSimply sign up to the UK inflation myFT Digest -- delivered directly to your inbox.UK inflation accelerated to 2.6 per cent in November, in line with analysts’ predictions, cementing expectations that the Bank of England will hold rates steady at its meeting on Thursday.The year-on-year rise in the consumer price index was above the 2.3 per cent recorded in October, as costs of motor fuels and clothing help push the annual rate higher.The Office for National Statistics data comes as the BoE’s Monetary Policy Committee meets this week to set rates amid signs of a stagnating economy. GDP has shrunk for two consecutive months, while business surveys point to weaker confidence and curtailed hiring intentions. But a pick-up in UK wage growth has helped quash hopes of an interest rate cut this week. Some content could not load. Check your internet connection or browser settings.The rate of services inflation, which is closely watched by the central bank as a gauge of underlying domestic price pressures, was 5 per cent in November, matching October’s figure but below analysts’ expectations of 5.1 per cent.BoE policymakers have highlighted the persistence of services inflation as a reason to be cautious before lowering interest rates again after the key rate was trimmed to 4.75 per cent in two quarter-point moves this year. Governor Andrew Bailey has said the BoE will continue to ease policy gradually. Clare Lombardelli, the deputy governor, told the Financial Times in November that she was worried services price inflation had continued to be “well above” rates consistent with the BoE’s 2 per cent target. The November services price reading was slightly ahead of the BoE’s own 4.9 per cent forecast. Recommended“This inflation increase extinguishes any lingering hopes of an interest rate cut on Thursday, while concerns over mounting inflation risks, including the recent spike in pay growth, mean that a February loosening is not a done deal,” said Suren Thiru, Economics Director at accountants’ body the ICAEW.   “I know families are still struggling with the cost of living and today’s figures are a reminder that for too long the economy has not worked for working people,” the chancellor Rachel Reeves said. Following the release of the data, sterling edged down 0.1 per cent to $1.269.  https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2F602cad78-75a0-4f1c-8c35-56bff080cfa0.jpg?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1 2024-12-18 07:42:45

[influencermagazineuk]

Wall Street Follows Europe's Lead as US Inflation Drops to a Three-Year Low

Wall Street rebounded Wednesday, tracking gains in both the FTSE 100 and European stocks, after US inflation dropped to a three-year low. The annual rate of inflation in the US dropped to 2.9% last month, raising hope for a possible interest rate cut by the Bank of England. Wall Street rebounded Wednesday, tracking gains in both the FTSE 100 and European stocks, after US inflation dropped to a three-year low. The annual US rate of inflation fell last month to 2.9%, boosting optimism of an interest rate cut by the Bank of England. The Wall Street session conducted on Wednesday was in sync with the markets across Europe, more so because of the FTSE 100, as news broke that the US hit its lowest inflation rate in just over three years. Slowing inflation eased some concerned investors as the outlook for the global economy seemed to be forged into hope. US Inflation Hits New Low The annual inflation rate in consumer prices advanced only 2.9% in July, down from 3% in June, reflecting the smallest increase in prices over a 12-month period since March 2021. On a month-on-month basis, prices grew 0.2%, building on a small decline of 0.1% in June. These numbers may therefore suggest that inflation is finally starting to cool, which will be welcome news for consumers and businesses alike. Markets' Reaction The slowing inflation in the US had a knock-on effect in markets around the world. The UK's leading stock market index, the FTSE 100 of London, inched up by 0.4% to hit a two-week peak. This was across the board, except for industrial metal miners, which came under a little pressure. The major European index, the German DAX, posted only a marginal gain of 0.2%. France's CAC rose by 0.5%. The broader STOXX 600 index gained 0.3%. These increases were certainly a sign of renewed optimism among investors about the global economic situation. Bank of England Interest Rate Decision With inflation cooling, what the Bank of England may do next is becoming a matter of some speculation. UK investors are now pricing in the potential for a September rate cut. Markets anticipate that base rates will be slashed to 4.75% from the current 5% when the Bank of England's Monetary Policy Committee meets next month, Britain's long period of rising quarterly inflation may be over. Inflation is creeping up less since the Monetary Policy Committee last reduced the base rate to its current level from 5.25% on April 10. Consumer Price Index in the UK The Consumer Price Index, a measure that shows the average price change over time paid for a basket of consumer goods and services, rose 2.2% in July. That was just a bit higher than the 2% recorded in both May and June, but below the consensus 2.3%. Though the CPI was up, it was not that terrible in as much as all this while had been assumed, so it could also be the reason for the speculation of a cut in the interest rates. US Markets Respond Positively Wall Street posted broad-based gains at home in the US as investors took the view that inflation is growing at a sluggish pace. Year-on-year inflation to July, the core rate increased by just 3.2%. This was the smallest 12-month rise since April 2021 and good news for investors. The US dollar did slip a little, but. The pound was 0.1% weaker versus the US dollar at 1.2850. It snaps a five-session upswing of the pound against the dollar. This decline did not shake the general optimism throughout the market. What Does This Imply for Investors? As inflation cools, where do you need to be putting your money? Many investors are feeling the pinch of falling interest rates, which are causing them to begin considering repositioning their investment strategies. With reduced interest rates, lending becomes cheaper; hence, expenditure and investment increase. Many investors could now be thinking of investing their money in the stock market since profits for companies would generally rise. In the meantime, lower interest rates could also mean reduced returns on savings accounts and bonds. Those looking for safer avenues might have to be on the lookout for other classes, such as real estate or dividend-paying stocks, to ensure a good interest rate growth and stability, even when interest rates are low. Looking Ahead All central banks are set to come into focus as the global economy is brought to grips with this new set of inflation numbers. This might be crucial for tone-setting by the Bank of England in September and, consequently, every other central bank across the globe. Further gains could be expected in the stock market were the Bank of England to decide to cut interest rates, as lower borrowing costs usually encourage more investment. This should also be in the scheme of things for the US Federal Reserve as it looks at the inflation data in its decision over the next courses to be put in motion. At the moment, the fall in inflation looks welcome, but the future is hardly certain. Investors need to stay informed and be ready to adjust strategies as new information becomes available. In the meantime, the upside impetus from Wednesday's market action can give some hope that the worst part of the inflation crisis might be behind us. Needless to say, it will pay to remain vigilant over the coming months in regards to economic indicators and central bank decisions if smart investment choices are to be made within this changing environment. Read the full article

[leprivatebanker]

The case for holding rates, with Catherine Mann

A conversation with a member of the Bank of England’s Monetary Policy Committee