Even though hopes for early interest rate cuts have been dialed back since the start of the year, the focus this week will still have been on the central bank meetings in the US and the UK with analysts trying to decipher the commentaries for clues as to future policy intentions.

In the UK, the Bank of England is widely expected to leave rates unchanged at 5.25% on the basis that inflation – while it is heading in the desired general direction thanks to lower energy prices – is still some way off the official 2% target.

At the previous MPC (Monetary Policy Committee) meeting there were no votes to cut rates, three votes to raise rates and six votes to hold them unchanged.

The EY ITEM Club, which uses the same model of the UK economy as the Treasury, forecasts rates staying at 5.25% until May due to central bank wariness over high services inflation and the potential impact of April’s increase in the national living wage.

It’s a similar story in the US, where expectations for rate cuts have also been pushed back, despite inflation having come down much faster, due to the resilience of the US economy and in particular consumer spending.

As one commentator put it after the fourth-quarter real GDP (gross domestic product) figure came in at 3.3% against forecasts of 2%, the economy isn’t headed for a ‘soft landing’ so much as no landing at all.

It’s little wonder therefore the major US stock indices are trading at new all-time highs.

As for what lies ahead, there could be some volatility around the US payroll and non-farm output figures on 2 February, but next week focus moves back to the UK with January retail sales data, Halifax house prices and the construction industry PMI (purchasing managers index) likely to be the main highlights. 

‹ Previous2024-02-01Next ›