Bank of England holds policy rate steady

The Bank of England elected to keep rates unchanged at its meeting on Thursday, leaving the policy rate at 4.5%. The decision was widely expected, with policy makers having flagged at their previous meeting that any further cuts would “gradual and careful”. The tone of the meeting was, however, materially more hawkish, with an 8 – 1 split amongst members, as Swati Dhingra voted for a 25bps reduction. That stands in contrast to the February meeting where two committee members voted for a 50bps cut. The BoE is grappling with balancing a weak economic outlook against the prospect of above target inflation and an uncertain global landscape. We nonetheless expect that the BoE will be in a position to cut rates further this year,

The January UK labour market report pointed to continued strong wage gains and signs of a stabilization in job growth. Private-sector pay growth (excluding bonuses) – the measure most keenly watched by the BoE – fell marginally over the month, declining to 6.1% y/y from 6.2% in December. That degree of wage growth is significantly above the 3% pace considered consistent with the 2% inflation target. Tax data pointed to a stabilization in job growth at the beginning of the year, after having cooled in recent periods, with records showing that payrolled employees rose by 21k on the month, rather than falling by that number, as had been expected.

US initial jobless claims rose marginally in the week ending 15 March, rising to 223k from 220k the week prior. Separate data showed that claims from federal workers fell, dropping to 821 new claims from 1066 the week prior, suggesting the material cuts to the government workforce is yet to be seen in the data.

Today’s Economic Data and Events

• 19:00 EC consumer confidence, March. Forecast: -13.0

Fixed Income

• Yields on both 2yr and 10yr US treasuries were little changed on Thursday, falling by less than 1 bps from levels reached on Wednesday. The 2yr yield fell to 3.9636%, while the 10yr yield reached 4.2369%.
• Moves in major European bond yields were mixed on the day. The 10yr Gilt yield rose 1bps to 4.644%, after a more Hawkish BoE policy statement. The 10yr Bund fell by 2bps to 2.778%.

FX

• The dollar strengthened against a basket of peer currencies on Thursday, with the spot index rising 0.4%. EURUSD fell 0.48% to 1.0851. GBPUSD declined by 0.3% to reach 1.2967. USDJPY rose 0.06% to reach 148.78.
• Moves in commodity currencies against the dollar were mixed on the day. Both AUDUSD and NZDUSD fell sharply, dropping 0.85% and 1% to 0.6303 and 0.5758, respectively. USDCAD was broadly unchanged at 1.4325.

Equities

• US stocks fell on Thursday, as markets digested the Fed decision and started to look ahead to reciprocal tariffs being introduced on 2 April. The S&P 500 fell 0.2%, the NASDAQ declined by 0.3%, and the Dow Jones was broadly flat.
• Tariff concerns also hit European equity indices, which generally saw falls on the day. The Eurostoxx 50 and CAC 40 both fell 1%, while the DAX dropped 1.2%.
• Locally, the DFM rose 0.3% and the ADX closed 1.2% lower. The Tadawul rose 0.4%.

Commodities

• Oil futures jumped higher on Thursday, with the US sanctioning a Chinese refinery for using Iranian oil. Brent futures rose 1.7% to USD 72/b, while WTI increased