BoE To Decide On Interest Rates, UK Inflation Meets BoE's Target
The Bank of England (BoE) interest rate decision is likely to draw the attention of most economists and market analysts on Thursday. Earlier today, a report by the Office for National Statistics (ONS) showed that UK inflation fell to 2% for the first time in the last three years.
Retail sales in the US rose 0.1% in May, below the 0.2% Dow Jones estimate. The report by the US Commerce Department showed that consumer spending faces hardships, weighing on the country’s economic growth. The weaker than expected retail sales figure increased hopes for a Fed rate cut by the end of the year.
Tomorrow Thursday, it will be the turn of the Swiss National Bank (SNB) and the People’s Bank of China (PBoC) to decide on borrowing costs with economists suggesting that both central banks would keep them on hold.
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BoE Interest Rate Decision
The UK’s central bank Monetary Policy Committee (MPC) will convene on Thursday to examine the effect of its monetary policy and decide on interest rates. The majority of market analysts do not expect the BoE to move forward with a rate cut after the end of this meeting.
According to a Reuters report, published on June 12th, 63 out of 65 economists polled by the news outlet see the BoE cutting rates by 25 basis points after the August meeting. The majority also expect one more rate cut by the end of the year. It should be noted that interest rates sit currently at a 16-year high.
ING economists believe that the BoE’s board will take the opportunity to lay the ground for a summer rate cut. The Dutch bank’s economists suggest that the BoE wouldn’t alter its monetary policy as election campaigns are under way and the election data set for July 4th. In their report, they note: “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.”
UK CPI Inflation Drops To 2% In May
Headline inflation in the UK fell to an annual rate of 2% in May according to a report by the ONS published earlier on Wednesday. May’s figure was in line with analysts’ forecasts, and it was the first time that inflation figures matched the BoE’s target in the last three years.
Commenting on the inflation report, PwC UK economists told The Guardian that it is a decisive moment in the fight against inflation but added that the job is not yet done. “This is the longest period that inflation has exceeded the 2% target since the early 2010s, when it took four years to return to target. If prices continue to rise at the same month-on-month rate as they did this month (0.3%), then headline inflation will be back over the 2% target next month (at 2.1%),” they noted.
UK Retail Sales May 2024 Report
On Friday, the ONS will share the UK retail sales data for May 2024. Market analysts suggest that retail sales dropped by 0.9% on an annualised basis, gaining some ground when compared to April’s figures. On a month-to-month basis, retail sales are expected to come in at 1.5%, increasing from April’s -2.3%.
According to data from the British Retail Consortium (BRC) released earlier in June, the UK’s retail sales saw a mild recovery towards the end of May, as the total retail sales in the country surged by 0.7% on a yearly basis.
Commenting on the BRC report, KPMG economists said that “after nearly three years, things may have turned a corner for online retailers, with year-on-year sales growth across most categories, including toys and baby equipment and house textiles,” while BRC analysts stressed that the Euro football championship and the Olympic games may play a role in the retail sales resurgence.
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