Closing post
Time to recap….
The Bank of England has left interest rates on hold at 4.25%, though it signalled further cuts in the cost of borrowing later this year after “clearer evidence” of rising unemployment amid a slowing economy.
Six members of the Bank’s nine-member monetary policy committee (MPC) voted to keep rates on hold while three supported a reduction to 4%, to add to the four quarter-point cuts since last August.
The Bank’s governor, Andrew Bailey, said interest rates “remain on a gradual downward path” after “seeing signs of softening in the labour market”. He cautioned, however, that the world was “highly unpredictable” and it was difficult to predict when interest rates would next be reduced.
More here:
Chancellor Rachel Reeves backed the Bank, saying it has a difficult job.
Several economists predicted the Bank will cut rates, to 4%, in August, with two cuts expected by the end of the year.
Shares have dipped in London today, where the FTSE 100 index is down 19 points or 0.22% at 8823 points.
Oil has risen, as the Israel-Iran conflict entered its seventh day; Brent crude is up 1.7% at $78/barrel.
Here’s the rest of today’s news:
The Bank of England is “skipping” towards an August rate cut, reports analysts at Investec.
They explain:
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The main focus of the minutes appeared to be related to conditions in the labour market. Our takeaway was that the committee seems more convinced that the labour market is indeed loosening, with Bank staff predicting some ‘modest deterioration’ in indicators such as the unemployment rate over the coming months.
For the more dovish on the committee, that appeared to be enough to warrant lowering rates already. However, the more hawkish members seem to want to see more evidence that the looser labour market conditions are translating into lower price growth.
Updated
Japanese bank MUFG has told clients:
The BoE left rates unchanged, as expected. The vote split (6-3) was in line with our expectations but more dovish than the consensus. The key guidance was left unchanged. The BoE acknowledged softer domestic data but also flagged possible risks from higher energy prices.
The MPC is likely to remain divided around risks to inflation from here. We continue to see the established quarterly easing cycle at projection meetings as the path of least resistance.
Today’s decision is broadly neutral, to slightly bearish for the pound. We will need further weak labour market data for markets to price a faster pace of rate cuts.
Reeves: Bank has a difficult job to do
Rachel Reeves has said the government respected the Bank’s decision to leave interest rates on hold.
Speaking at The Times CEO Summit, the chancellor says:
“We respect independent economic institutions, and the Bank has got an incredibly important but difficult job to do.
“We want them to set the monetary policy that is appropriate for meeting the inflation target, because we also saw in the last parliament a double-digit inflation which was so challenging for businesses, but also family finances, which also has a knock on impact on business.”
Reeves also tried to take credit for the four cuts to Bank Rate since last August, saying these reductions were:
“a world away from the previous parliament, when interest rates went up so sharply because of the poor economic mismanagement of prime ministers and chancellors”.
[interest rates did rise in many other countries in 2022 and 2023, after Russia’s war in Ukraine drove up energy costs]
On the decision not to rescue the UK's largest fibreglass factory from closure, @RachelReevesMP says: “The answer can’t always be yes - even if there are things we might like to do.” #TimesCEOSummit pic.twitter.com/5ogr49DLgQ
— Times Business (@TimesBusiness) June 19, 2025
Chancellor & @MehreenKhn in conversation at #TimesCEOSummit The Chancellor suggesting she kitchen-sinked the tax increases for this Parliament - but Mehreen rightly challenging her on whether that is durable given a potentially revised downward OBR forecast for productivity next… pic.twitter.com/MvpdoafP7G
— Simon French (@Frencheconomics) June 19, 2025
Updated
Bank of England may eventually cut rates below 3.50%, predicts Capital Economics’s chief UK economist, Paul Dales:
The Bank of England sounded a bit more dovish while leaving interest rates at 4.25% today, despite the extra upside risks to inflation from events in the Middle East.
This supports our view that the Bank will cut rates to 4.00% in August and eventually to 3.50% (or perhaps lower).
Bank of England governor Andrew Bailey has cautioned that the BoE is not predicting a rate cut in August.
In a video clip released after today’s rates decision, Bailey predicts that the path of interest rates will continue to be ‘gradually downwards’.
He says:
We still continue to think that although the world is now very unpredictable, unfortunately, due to many recent events, that it’s really conditions in the United Kingdom that are determining where inflation is going to.
We’ve seen further evidence that conditions in the labour market are beginning to ease. But inflation has risen, due to increases in regulated prices. We were expecting that.
I do believe that the path of interest rates will continue to be gradually downwards. What we need to see is that evidence of loosening in the labour market gets translated through into inflation now easing over the period to come, particularly as we go into next year, back towards our two percent target.
And looking ahead to the Bank’s next meeting in August, Bailey says:
“I expect that the path of interest rates will continue to be gradually downwards. Now I’m not giving you a prediction on August by saying that.
In August we will come back and look at all the evidence, as we always do, and we will assess once again whether we are seeing a pattern and a picture emerge which gives us confidence that over the next year, or so, we will see inflation return to our 2% target, which is what we expect. But we need to see the evidence building for that.
Governor and chancellor exchange letters over inflation overshoot
Under the Bank of England’s remit, the governor has to give an explanation to the chancellor if inflation rises more than one percentage point over its 2% target.
So with inflation at 3.4% in May, Andrew Bailey has written to Rachel Reeves. In the letter, just published, the governor says the increase in CPI inflation is largely due to increases in household energy prices, and “other regulated and administered prices” including water bills regulated by Ofwat and Vehicle Excise Duty.
Bailey predicts, though, that the increase in CPI inflation will be temporary, due to a “continued gradual easing of price pressures in the UK”.
Reeves has welcomed this prediction, writing in reply:
I welcome your assessment that there has been a gradual easing of price pressures in the UK economy and that the recent increase in CPI is expected to be temporary.
This has allowed the MPC to cut Bank Rate four times since August 2024, from a peak of 5.25%. Monetary policy is working as it should to return inflation to target sustainably in the medium term.
You can read the minutes of this month’s Bank of England interest rate-setting meeting, here.
The Monetary Policy Committee voted by a majority of 6-3 to keep interest rates at 4.25%
— Bank of England (@bankofengland) June 19, 2025
Find out more: https://t.co/rcGJUYFkWZ pic.twitter.com/VkO9vZyjgS
Bank of England holds rates: What the experts say
Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management, predicts the Bank of England will cut interest rates at its next meeting, at the start of August.
The BoE held rates steady, maintaining its “gradual” easing approach. While the recent spike in energy prices and high inflation warrant some caution, the shaky labour market and moderate pay growth suggest that disinflation has further to run.
We continue to expect the bank to resume rate cuts in August, followed by a shift to consecutive reductions starting in November, ultimately bringing the bank rate down to 3.25%.
Barret Kupelian, chief economist at PwC, says geopolitical uncertainty is creating a challenge for the Bank:
Central banks feel instinctively more comfortable with the demand side of the economy. Nonetheless, it is the supply side that is proving to be more challenging to tackle. An added layer of complication is the fog of uncertainty caused by the geopolitical environment.
The clearest illustration is oil, which has climbed from roughly $64 bbl at the end of May to around $74 bbl today. If that rally embeds itself into wage setting or in household bills, the upside risk to inflation could well push any rate cut further down the calendar. In these murky waters, patience is the Bank’s best compass, steering a steady course between hawkish overreach and premature relief.
Marcus Jennings, fixed income strategist for global unconstrained fixed income at Schroders, reckons the Bank should have confidence to cut rates later this year:
Market expectations were low for this Bank of England meeting and in the event, it proved to be one of the less volatile moments for the gilt market. The Bank has recently reiterated a gradual approach to rate cuts and the macro developments since the last meeting have broadly played into this view.
Unsurprisingly then, the tone of today’s meeting was largely unchanged compared to previous guidance, even if the vote split skewed slightly dovish relative to consensus. With a nod to more slack in the labour market, it should give the Bank more confidence to continue easing at a gradual pace later this year.
Felix Feather, economist at asset manager Aberdeen says today’s vote was “marginally closer than expected”, with three members voting for a cut.
The slightly more dovish than expected vote split doesn’t change our view that the Bank of England is most likely to stick to a quarterly pace of cuts going forward in line with its “gradual and careful” guidance.
But it does suggest the MPC is somewhat sensitive to weaker labour market data, and serves as a reminder of the downside risks to our rate call.
Meanwhile, further escalation of the conflict in the Middle East could push up on UK inflation, which could see the Bank move more cautiously.
Updated
IPPR: Bank is harming households by not cutting rates
Carsten Jung, associate director for economic policy at the IPPR thinktank, argues that the Bank took the wrong decision today:
Jung points out that a cut to borrowing costs would have helped many households:
The Bank should have continued its rate-cutting cycle, by lowering rates by 0.25 today.
This year’s GDP growth has been lower than expected, in large part because interest rates are being kept high for long. Even when considering still elevated inflation, the Bank continues to run an overly restrictive policy, and it is harming ordinary households.
But even as price increases are set to slow, many essential goods are still very costly. The government should do more to reduce the cost of living for households right now. By rebalancing energy bills to lower electricity prices, helping people with energy debt and regulating the additional fees charged to consumers, the government could provide prompt relief - and demonstrate that ministers are proactive in tackling the cost of living.
Updated
Today’s decision to hold interest rates at 4.25% is a blow to borrowers hoping for lower borrowing costs.
Andrew Gall, head of savings and economics at the Building Societies Association (BSA), says:
“We still expect further Bank Rate cuts this year, but many first-time buyers will be disappointed by the delay. Since 2020, mortgage repayments for new homebuyers have risen by around 30%, now accounting for 22% of income [details here], meaning affordability is a major barrier to homeownership.
“Building societies continue to find innovative ways to support aspiring homeowners, providing almost 37% of first-time buyer mortgages last year. However, more flexible mortgage regulation is also needed to give lenders more opportunity to offer real help.”
59% chance of UK rate cut in August
What are the chances that the Bank cuts interest rates in August?
According to the City money markets, a cut to 4% in August is now a 59% chance, with a 41% possibility that rates are left on hold at 4.25% again.
Two rates cuts by the end of 2025 are still priced in.
Updated
Pound dips after Bank split 6-3 on rates
The pound has dipped following the Bank of England’s interest rate decision.
Sterling has slipped to $1.341 against the US dollar, down from $1.343 just before noon.
Traders may be surprised that three Bank policymakers (Dhingra, Taylor and Ramsden) voted to cut rates; City forecasts were for a 7-2 split, not a more dovish 6-3.
Sanjay Raja, Deutsche Bank’s chief UK economist, says:
Consensus alongside us were expecting a 7-2 vote tally. We flagged the risk of Deputy Governor Ramsden’s dissent in our preview. This risk crystalised. Clearly, Ramsden is putting more weight on recent labour market dynamics.
Updated
Bank: Middle East conflict pushing up energy prices
The Bank of England warns that “global uncertainty remains elevated”, as it explains its decision to leave borrowing costs unchanged today.
They say:
Energy prices have risen owing to an escalation of the conflict in the Middle East. The Committee will remain sensitive to heightened unpredictability in the economic and geopolitical environment, and will continue to update its assessment of risks to the economy.
Key event
Explaining today’s decision, the Bank points out that underlying UK GDP growth “appears to have remained weak”, and the labour market has “continued to loosen”.
It expects pay growth to slow over the rest of this year, and will remain “vigilant” about the extent to which easing pay pressures will feed through to consumer price inflation.
It warns that there are “two-sided risks to inflation” (which was 3.4% in May); weak demand could pull it down, or higher food prices could raise inflation expectations.
The Bank adds:
Consumer price inflation is expected to remain broadly at current rates throughout the remainder of the year before falling back towards target next year.
Bank split 6-3 on interest rate decision
Once again, the Bank of England’s nine policymakers were split over how to set interest rates.
Six members voted to leave rates on hold: they were governor Andrew Bailey, deputy governors Sarah Breeden and Clare Lombardelli, chief economist Huw Pill, and external members Megan Greene and Catherine Mann.
Three voted to cut rates to 4% – they were external members Swati Dhingra and Alan Taylor, plus deputy governor, Dave Ramsden.
Lst month, Dhingra and Taylor were the two policymakers who voted for a steeper cut to rates – they’ve now been joined by Ramsden at the dovish end of the MPC.
Bank of England interest rate decision
Newsflash: The Bank of England has left UK interest rates on hold at 4.25%.
The decision, which matches City expectations, comes as the Bank weighs up the risks to the UK economy from US trade wars and the conflict in the Middle East, which has pushed oil prices higher in the last week.
But it’s a split decision – with six of the nine policymaker’s voting to hold, and three voting for a cut.
Details and reaction to follow.
Supermarket chain Morrisons planning £300m more cost cuts
Morrisons is aiming to make a further £300m in cost cuts in the next 18 months – raising fears of further job cuts – as the retailer says inflation is driving “subdued consumer sentiment”.
The Bradford-based supermarket chain, which employs 95,000 people in its 500 supermarkets and about 1,700 convenience stores, said it had already exceeded its target of £700m in savings – after cutting about 300 jobs with the closure of cafes, some small stores, florists and hot food counters, and was now aiming for a total of £1bn.
The latest cost cutting plans as Morrisons said sales in established stores rose 3.9% in the three months to 27 April, little more than grocery inflation, and underlying profit, excluding debt repayments, rose 7.2% to £344m.
The group said it was slimming down its range to make it “more focused”, and was putting a “rigorous focus on price” but also adding more world food ranges. It is also hoping to open hundreds more convenience stores in partnership with franchisees.
Rami Baitiéh, the chief executive of Morrisons, said the group had bounced back from disruption caused by a cyber attack on its supplier Blue Yonder late last year: “Against the backdrop of a challenging macro environment, with inflation driving subdued consumer sentiment, value remains at the forefront of customers’ minds.
He said:
“Throughout the first half we’ve worked hard on helping customers through these challenges with a rigorous focus on price, promotions and meaningful rewards for loyalty.”
Ministers stepping up preparations for renationalisation of Thames Water
The environment secretary, Steve Reed, has said the government is stepping up preparations for temporary nationalisation of Thames Water, indicating it will reject pleas from the company’s creditors for leniency from fines and penalties.
Reed told parliament this morning that Thames Water must meet its statutory obligations, after being asked about possible “regulatory easements”.
“Thames Water must meet its statutory and regulatory obligations to their customers and to the environment,” he said, adding:
“It is only right that the company is subject to the same consequences as any other water company.
“The company remains financially stable, but we’ve stepped up our preparations and stand ready for all eventualities, as I’ve said before, including special administration regime if that were to become necessary.”
More here:
Reed’s comments come after The Guardian revealed earlier this month that the creditors had asked for immunity from prosecution for serious environmental crimes in return for taking on the company.
Little chance of UK rate cut today...
The clock is ticking towards noon, when the Bank of England will announce its decision on UK interest rates.
The BoE is still expected to leave borrowing costs unchanged in 30 minutes time, despite the rate cuts we’ve seen in Norway, Switzerland and the Philippines today.
Ronald Temple, chief market strategist at Lazard, says:
Markets are pricing less than a 10% chance of a rate cut from the BoE Monetary Policy Meeting this afternoon. By year end, market prices suggest 53 bps of easing. The BoE will be responding to conflicting economic signals including a weaker-than-expected April GDP reading and sluggish employment metrics while at the same time grappling with surprisingly high inflation.
Observers generally expect the BoE to shift to cutting rates at every other meeting with this afternoon’s meeting offering no policy change.
Professor Costas Milas, of the University of Liverpool’s management school, argues that the Bank of England is in a very tricky situation regarding an interest rate cut at its next scheduled meeting in August.
He tells us:
Following yesterday’s inflation reading of 3.4 per cent (for May), the Bank of England’s policymakers will almost certainly keep Bank Rate at 4.25% today. Many analysts believe that an August interest rate cut is likely, not least because the Bank of England will report, at that time, its new forecasts of the UK economy.
The Bank’s policymakers, however, would like to see inflation (for June) falling below the psychological threshold of 3 per cent in order to consider an August interest rate cut. There is, however, an additional problem. Because of the Israel-Iran war, oil prices have moved above $70, that is, notably higher than the $64-$65 oil price estimate the Bank of England recently used to forecast UK inflation. As things currently stand, and without direct U.S. involvement in the conflict, an interest rate cut is not very likely for August either.
Updated
Analysts at Oxford Economics have warned that oil would surge if the Strait of Hormuz were to be closed, which would knock share prices sharply lower.
They explain:
The Middle East conflict adds considerable uncertainty to the outlook for oil prices. So far, supply is unaffected, and we think the modest risk-premium-driven rise is likely to have limited impact on the global economy or risk assets.
However, a further escalation – particularly one which results in the closure of the Strait of Hormuz – would be more damaging. In a scenario where a closure caused the oil price to spike to around $130 per barrel, our macro team projects global growth would be approximately 0.3% below our current baseline in 2026, with world and US CPI inflation peaking at almost 6%. We think equites would sharply sell off in this scenario as investors price in a more stagflationary environment.
However, we wouldn’t anticipate a renewed bear market as the shock is unlikely to be enough to tip the global economy into recession. The lesson from previous geopolitical crises is that the impact on equity markets tends to be short-lived if an economic downturn is avoided.
Norway’s prime minister Jonas Gahr Stoere has welcomed today’s interest rate cut.
Stoere told news agency NTB:
“This is especially good news for everyone with loans.”
ING point out that today’s cut to Swiss interest rates follows a return to deflation in Switzerland.
They explain:
The consumer price index (CPI) fell by 0.1% year-on-year, deviating from the SNB’s inflation target of between 0% and 2%. Since peaking at 3.5% in August 2022, inflation has steadily declined, reaching 0% in April and now moving into negative territory.
he latest decline is largely attributed to external factors. Global energy prices plummeted in May, causing energy inflation to drop by 8.3%. Additionally, the strength of the Swiss franc, which reached its highest level ever in effective terms, significantly reduced the cost of imported goods, which fell by 2.4% year-on-year in May.
Given that imports account for 23% of the CPI basket, this has a substantial impact on overall inflation in Switzerland.
Britain’s tax gap – a measure which estimates how much tax owed was not paid – has widened.
New data from HMRC shows that the UK missed out on £46.8bn of tax liabilities in the 2023-2024 financial year, or 5.3% of the total theoretical tax liabilities.
That’s slightly more than in 2022-23, when the tax gap is estimated to have been £46.4bn – from a slightly wider tax gap of 5.6% of total theoretical tax liabilities.
The data is calculated from estimates of how much excise duty, income tax, national insurance, capital gains, corporation tax and other levies were dodged.
Caitlin Boswell, Head of Advocacy and Policy at Tax Justice UK says HMRC needs more resources to tackle tax evasion:
“The real story here is that the UK’s tax authority doesn’t have the resources or backing it needs to tackle the tax gap which is likely far larger than what is published.
Evidence suggests that the level of tax non-compliance among the super-rich is far higher than estimated, with eye-watering sums of hoarded wealth being held offshore and out of sight of HMRC. Collecting the right tax, to invest in better healthcare, education and social security requires reliable investment and political backing in HMRC.
Instead, the department has to battle fluctuations in staffing resources, has disbanded its unit dedicated to collecting tax from ultra wealthy individuals and is expected to weather real-terms cuts to budgets in the coming years.”
The Norwegian currency has been knocked lower by today’s surprise interest rate cut.
The krone has dropped by 1% against the US dollar, to 10.06 krone to the $.
That underlines that investors had not expected Norges Bank to make its first post-pandemic rate cut today.
Updated
Premier Inn owner’s revenue drops in ‘challenging’ market
Whitbread, the owner of hotel chain Premier Inn, has reported a drop in sales as the company struggles against a weak consumer environment and overhauls its restaurant business.
The group, which also owns food chains Beefeater and Brewers Fayre, reported a 5% drop in sales in the UK, led by a 16% drop in its food and beverage division. Its smaller business in Germany performed much better, with sales up 16%, but that was not enough to counter the decline in its home market, with overall sales across the group down 4%.
Richard Hunter, head of markets at the broker Interactive Investor, said while there was little for investors to cheer for in the update, it should be taken in the context of the company’s five-year plan. Last year Whitbread said it would convert 112 of its food and drink sites into hotels, sell 126 unprofitable restaurants, and cut 1,500 jobs.
Hunter said:
“The shares have struggled against the backdrop of a tough consumer environment, especially in the UK, and have fallen by 5.5% over the last year, during which time the wider FTSE100 has seen a 7.8% gain. The group is nonetheless generally well regarded for its prospects and, if achieved, the strategic plan would mark a successful step-change.”
The company told investors on Thursday its property disposals are on track to deliver proceeds of £250m to £300m.
While sales fell in the first quarter, the company emphasised that Premier Inn UK was outperforming its “midscale and economy” corner of the hospitality market. Still, Whitbread shares were down by as much as 2.7% in early trading.
Norway cuts rates too
Newsflash: We have a third interest rate cut this morning!
Norway’s central bank has surprised analysts by cutting its policy rate by a quarter of one percentage point, to 4.25%. The rate had been set at 4.5% since December 2023.
The Norges Bank says today’s decision was unanimous, following a slowdown in price rises.
Governor Ida Wolden Baches explains:
“Inflation has declined since the monetary policy meeting in March, and the inflation outlook for the coming year indicates lower inflation than previously expected.
A cautious normalisation of the policy rate will pave the way for inflation to return to target without restricting the economy more than necessary.”
Norges Bank also warns that there is more uncertainty about the economic outlook than usual – citing the risk of trade conflict.
Governor Ida Wolden Bache says:
“The uncertainty surrounding the economic outlook is now greater than normal. If the economy takes a different path than currently envisaged, the policy rate path may be adjusted. But our objectives stand firm. We will finish the job and ensure that inflation is brought all the way back to 2 percent.”
Philippines cuts interest rates, warns Middle East conflict could hurt growth
There’s also an interest rate cut in the Philippines today, although the decision wasn’t exactly a thriller in Manila.
Bangko Sentral ng Pilipinas has decided to cut its target reverse repurchase (RRP) Rate by 25 basis points to 5.25%, in line with market expectations.
It took the decision “as the outlook for inflation moderated”.
The BSP also warned that the Middle East conflict, and trade war concerns, could both hurt growth.
It says:
The Monetary Board also noted indications of a deceleration in global economic activity, driven primarily by uncertainty over US trade policy and the conflict in the Middle East. This would lead to slower growth in the Philippines.
A rise in oil prices, electricity rate adjustments, and higher rice tariffs, would add to inflationary pressures.
Updated
Switzerland cuts rates to zero
Newsflash: Switzerland’s central bank has lowered interest rates, and warned that trade tensions are hurting growth across the world economy.
The Swiss National Bank has lowered its policy rate to 0%, from 0.25%, declared that inflationary pressure has decreased compared to the previous quarter, and lowered its short-term inflation forecast.
The SNB also predicts that growth in the global economy will weaken over the coming quarters, saying:
The global economy continued to grow at a moderate pace in the first quarter of 2025. The global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions.
In its baseline scenario, the SNB anticipates that growth in the global economy will weaken over the coming quarters. Inflation in the US is likely to rise over the coming quarters. In Europe, by contrast, a further decrease in inflationary pressure is to be expected.
#Swiss National Bank #SNB cuts policy rate by 25bp to 0%, chart @SNB_BNS https://t.co/sYg3QteeyZ pic.twitter.com/UCzPUqwlXR
— ACEMAXX ANALYTICS (@acemaxx) June 19, 2025
Updated
Recruiter Hays hit by slowdown in hiring demand
The health of the UK labour market is a key factor which the Bank of England considers when setting interest rates.
So, they may be concerned that recruitment firm Hays has issued a profits warning this morning, after suffering from weaker demand for hiring.
Hays told shareholders that activity levels during the last three months had fallen, primarily due to weakness in the global market for permanent staff. It blames this on “low levels of client and candidate confidence as a result of macroeconomic uncertainty”.
Hays added that the permanent jobs market has also weakened in the UK and Ireland, where it expects its income from recruitment fees to fall by 13%.
The company now expects to make an operating profit of £45m this financial year, below City forecasts of £56.4m.
Shares in Hays have tumbled 14% in early trading.
European markets fall
Europe’s main stock markets have dropped at the start of trading.
In London, the FTSE 100 index has lost 33 points, or 0.37%, to 8810 points. Mining stocks are among the fallers.
Oil company shares are rallying, with BP (+1.5%) and Shell (+1.3%) both lifted by the rise in crude oil prices today.
Germany’s DAX, France’s CAC, Spain’s IBEX and Italy’s FTSE MIB are all down around 0.5%
Oil is now up 1% today, following the news that Israel has attacked Iran’s Arak heavy water reactor.
Brent crude has now risen to $77.46 per barrel.
Shell CEO: We're being 'very careful' with shipping in the Middle East
The boss of Shell has revealed the oil giant is being “very careful” with its shipping through the Middle East given the escalating conflict between Israel and Iran.
Wael Sawan told an industry conference that:
“The escalation in tensions over the last few days, in essence, has added to what has already been significant uncertainty in the region.
“We’re being very careful with, for example, our shipping in the region, just to make sure that we do not take any unnecessary risks.”
Sawan also warned that trade would be significantly disupted if the Strait of Hormuz – between the Persian Gulf and the Gulf of Oman – were to be closed, saying:
“The Strait of Hormuz is, at the end of the day, the artery through which the world’s energy flows, and if that artery is blocked, for whatever reason, it’ll have a huge impact on global trade.”
Earlier this week two oil tankers collided and caught fire. near the Strait of Hormuz, which has been blamed on a navigational misjudgement.
The oil price has nudged higher this morning, as the Israel-Iran conflict enters its seventh day.
Traders may be uncertain how the clashes will play out, after Donald Trump said he has not decided whether or not to take his country into the war, after he demanded Iran’s ‘unconditional surrender’ yesterday.
The president has suggested to defence officials it would make sense for the US to launch strikes against Iran only if the so-called “bunker buster” bomb was guaranteed to destroy a critical uranium enrichment facility, according to people familiar with the deliberations:
Brent crude is up 0.2% this morning at $76.86 per barrel. That’s more than 10% higher than at the start of last week, although below the initial spike last Friday when the attacks began.
Will Bank policymakers split again?
The Bank of England’s policymakers may not be united today over how to proceed.
Last month, the BoE’s interest rate-setting committee split three ways, with two members opposing a cut to rates and two more pushing for a larger cut than was actually agreed by the majority.
BNP Paribas predicts the Bank will split 7-2, with the dovish Swati Dhingra and Alan Taylor in a minority voting for another cut.
They told clients:
Elevated trade uncertainty, limited clarity on the passthrough of domestic fiscal policy, and market pricing for a rate hold all point to a decision to keep rates on hold in June, in our view.
However, it is the divergence in domestic data in particular that will keep the MPC glued to its quarterly pace of easing for at least another meeting, we think.
Introduction: Bank of England expected to leave interest rates on hold today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
These are challenging times for central bankers. After steering through the Covid-19 pandemic, and then the energy shock after the Russia-Ukraine war, they must now set monetary policy in the face of an unpredictable trade war, and conflict in the Middle East.
Faced with such uncertainty, the Bank of England is expected to sit on its hands today when it sets UK interest rates.
According to the money markets, there’s a 96% chance that the BoE leaves rates on hold at 4.25% at noon today, and only a 4% possibility of a quarter-point cut (which would bring Bank Rate down to 4%).
Although UK inflation fell last month, to 3.4%, it remains stubbornly above the BoE’s 2% target – and could push higher if the Israel-Iran conflict drives the oil price higher.
Zara Nokes, global market analyst at J.P. Morgan Asset Management (JPMAM), says UK inflation is still “uncomfortably high”, explaining:
Escalating tensions in the Middle East, and the upward pressure this is putting on oil prices, will only add to the Bank of England’s concern about easing rates too quickly.
The Monetary Policy Committee will face a tougher choice when meeting again in August, given the combination of still-sticky inflation and evidence that the labour market is quite clearly cooling. A deterioration in the labour market should, in theory, put downward pressure on inflation, but until there are clear signs of this in the hard data, the Bank should be careful not to claim victory over inflation quite yet, not least because of the uncertain geopolitical climate.”
The Bank has cut rates four times in the last year, having lifted borrowing costs through 2022 and 2023 as it battled inflation. The money markets currently predict it will manage two more quarter-point cuts by the end of 2025.
Last night, America’s central bank left US interest rates on hold, but also lowered its forecasts for economic growth.
Federal Reserve chair Jerome Powell warned that the tariffs imposed by Donald Trump on imports would add to inflationary pressures, saying:
“Increases in tariffs this year are likely to push up prices and weigh on economic activity.
The effects on inflation could be short-lived, reflecting a one-time shift in the price level. It’s also possible that the inflationary effects could be more persistent.”
The UK’s new trade deal with the US should mean Britain is less affected by the global trade war, but as an open economy it would still feel the knock-on impact of trade disruption.
That could mean higher prices, meaning less pressure to cut rate, or lower growth, requiring lower borrowing costs to stimulate
The agenda
8.30am BST: Swiss National Bank interest rate decision
9am BST: Norges Bank interest rate decision
Noon BST: Bank of England interest rate decision
Noon BST: Bank of Turkey interest rate decision
