Bank of England keeps bank rate on hold at 5.25%

The Bank of England kept the bank rate unchanged at 5.25% as expected. Two MPC members voted for a 25bp rate cut, including Deputy Governor Dave Ramsden, while seven members voted to keep rates on hold. The Bank’s updated forecasts see inflation easing to 2% in Q2 before rising somewhat to end the year at 2.6%, slightly lower than their February projections, and assume two rate cuts this year. In his press conference Governor Andrew Bailey stressed that the MPC would be data dependent in its decisions but suggested that markets were underpricing the pace of rate cuts in the coming months. Before the next meeting, the BoE will see two more inflation prints as well as wage growth data for April. The market is now pricing an almost 60% probability of a rate cut in June, up only slightly from 55% ahead of the meeting. A 25bp rate cut is fully priced by August and another 25bp reduction is expected by the end of the year.

The US is set to impose new tariffs on imports from China next week, according to Bloomberg. The tariffs are expected to target strategic sectors such as electric vehicles, batteries and solar cells.

Initial jobless claims rose unexpectedly last week to 231k, up from 209k the week prior and the highest level since August 2023. While the data can be volatile, some Fed officials watch it closely as a real-time indicator of labour market conditions.

Today’s Economic Data and Events

10:00 UK Q1 GDP (preliminary) forecast 0.4% q/q and 0.0% y/y

10:00 UK industrial production (Mar) forecast -0.5% m/m and 0.3% y/y

11:00 Turkey industrial production (Mar) no forecast

18:00 University of Michigan consumer sentiment (May P) forecast 76.2

Fixed Income

• US treasury yields retreated from their mid-week high on Thursday, with the 2y yield declining -2p to 4.815% and the 10y yield down -4bp to 4.45%. Good demand for a 30y auction saw 30y yields also decline -4bp to 4.61%.
• Benchmark 10y yields were higher across Europe yesterday, although gilts were largely unchanged following dovish commentary from the BoE Governor Andrew Bailey in the post MPC presser. French 10y yields rose 4.3bp to 2.98% while bunds were up 3.3bp to 2.49%.

FX

• The USD index lost ground on Thursday, with the spot dollar benchmark down -0.3%. Lower treasury yields following weaker weekly unemployment data may have contributed. The main gainers were the commodity currencies with NZD up 0.2%, along with CAD, and AUD up 0.1%. Other major currencies were softer against the USD however, with JPY again losing 0.4% to reach 155.92, although it is trading firmer in Asia this morning. GBP was also softer following the BoE meeting after the Bank lowered inflation forecasts and signalled that June was a live meeting for a change in monetary policy.

Equities

• US equities rose on Thursday with the DJIA again leading the gains, up 0.9% followed by the S&P500 at 0.5%. The Nasdaq100 rose just 0.2% yesterday. European stocks continued to do well with the DAX up 2% and CAC40 up 0.7% on Thursday.
• Regional markets closed in the red yesterday with the Tadawul ASI down -1.4% led by the utilities sector. The ADXGI declined -0.6% while DFM closed -0.3% lower.

Commodities

• Oil prices rose again on Thursday with Brent gaining 0.4% to USD 83.88/b and WTI up 0.3% to USD 79.26/b. A risk-on tone in US markets after weaker weekly jobs data likely supported oil prices as well, with little other news to provide direction.