Esther Watt, Bond Strategist at Evelyn Partners, the wealth manager, shares her comments on what today’s news might mean for markets as follows:
“Coming hot on the heels of the Federal Open Market Committee’s decision to leave US interest rates unchanged last night, the Bank of England (BoE) followed suit with a widely expected ‘hold’ in their midday release keeping their target rate at 4.25%. This is a continuation of the one-cut-every-other-meeting approach since the current easing cycle began last August.
“The vote was split 6-3, versus the 7-2 shown by the Bloomberg survey, with Dave Ramsden joining external members Swati Dhingra and Alan Taylor on the dovish side, preferring to reduce the Bank Rate by 25 basis points, to 4.00%.
“The meeting did not come with updated forecasts, but guidance recognised ‘there remain two-sided risks to inflation’ with the ‘gradual and careful approach to the further withdrawal of monetary restraint’ reiterated. The focus of Bank watchers was if the news flow had been enough to sway members in the dovish direction… and clearly it had.
“Since the May Monetary Policy Report, the Monetary Policy Committee (MPC) has seen two rounds of GDP, inflation, and labour market releases. Overall, the economy has proved to be more resilient than the MPC expected with the latest data coming in with quarter-over-quarter growth at 0.7% (versus 0.6%), inflation slightly hotter at 3.4% (versus 3.3%) but with the labour market softening quicker than expected. Unemployment rose to 4.6% in the three months to April (ahead of the BoE’s 2Q25 projection) and HMRC’s latest PAYE Payrolled Employees Monthly change came in at -109k (vs 20k surveyed). Wage momentum, while still elevated with average weekly earnings 3-month/year-over-year at 5.3%, showed progress coming in below the anticipated 5.5%.
“Outside of the domestic data releases, marginal progress has been made on the trade front with the ‘UK-US Economic Prosperity Deal’, the ‘UK-India Trade Deal’ and the new UK-EU deal all small positives for the UK’s growth outlook. However, economic policy uncertainty remains elevated globally with geopolitical developments in the Middle East further muddying the outlook.
Bottom line
The BoE held interest rates steady at 4.25%. The UK swap market is pricing is an 85% chance of a cut at its next meeting in August and one further cut through to the end of 2025. Given Ramsden’s reputation as a bellwether on the committee, it will be interesting to see if weakening labour market data encourages more committee members to start look through inflation concerns, resulting in the pace of quarterly rate cuts picking up.
