After the meetings of Federal Reserve and Bank of Japan last week, the attention of investors still remains paid to monetary policy waiting for the meeting of the Bank of England, scheduled for Thursday 7 August.
Boe ready to cut
From the English central bank, a cut in interest rates of 25 basis points is expected, but also a prudent attitude on future moves given the high level of inflation.
Further cuts by the end of the year
Market expectations provide that the Bank of England will cut its reference interest rate, from 4.25%to 4%, Thursday and will further lower it by the end of the year, despite the inflation of consumer prices has climbed almost double the 2%lens, set by the Central Bank, in June. However, officials are divided on how much price pressures are attenuated and, if a slow -off labor market and stagnant growth, they will make inflation achieves the medium -term goal, if rates are not further reduced.
Despite inflation
British inflation has increased more than in the euro area or in the United States after the Vast Scala of Ukraine by Russia in 2022, reaching an 11.1%peak, in part due to the strong dependence of Great Britain on natural gas for heating and electricity. Inflation has decreased drastically in 2023 and touched the minimum at 1.7% in September 2024. Since then, however, it has increased more than in the United States or in the Eurozone and, in May the Boe has provided that it would not return to the lens before the beginning of 2027.
Global perspectives
Inflation rose to 3.6% in June, the highest level since January 2024, and some insiders believe that it will soon reach 4%. On the contrary, the European Central Bank provides that inflation in the eurozone will be just below 2%. Will the monetary policy committee give priority to employment or inflation? “The disappointing SME data will not contribute to dissipating fears about the health of the British economy.
The economic activity continued to grow in July, although only modestly and, at a much slower pace than expected. Perhaps the main alarm bell in the data is the strong slowdown of hires, with companies that seem to reduce the staff in response to the increase in the costs associated with the increase in tax rates for companies and minimum wages “, explains Matthew Ryan, manager of the market strategy.” Although we foresee a recovery of the activity in the second half of the year, after a period of effective stagnation in the second quarter, the perspectives remain anything else that remain anything else that remain without risk. The increase in inflation continues to erode real income, the financing costs are high and the labor market is rapidly deteriorating. We fear that the impending threatens to further increase in the tax taxes in the autumn can also curb investment and consumption decisions “, continues the expert.” The fragile prospects for growth and the labor market represent a serious scratch of the bank of England. The big question is if the monetary policy committee will give priority to employment or inflation. Although a cut of 25 basis points remains highly likely, in this August meeting, we believe that the fears on the latter will guarantee nothing but a gradual rhythm of rates of rates beyond that date “.
The employment in the United Kingdom slips
“Things are going wrong for the worse for the United Kingdom economy, adds Matthew Ryan. The jobs continue to be lost at a rapid pace, unemployment is increasing, vacancies are decreasing and requests for unemployment subsidies are increasing, while companies are cutting the staff in response to the heavily criticized tax incursion on companies by the government. of May salaries has been revised upwards, but we are still witnessing unprecedented levels of job losses in the first half of the year, outside the pandemic period “. The United Kingdom is blocked in a stagflation phase after the new increase in consumer prices “The latest data on inflation in the United Kingdom are very worrying. Consumer prices are growing at the fastest rhythm since January last year, almost double that provided by the Bank of England. Although the increase in the energy bills of families is partially at stake, we also attribute to the pressure on the cost of the labor deriving from the Of the tax rates for April companies, who are forcing employers to increase prices to compensate for the increase in costs “, underlines Ryan, according to which Great Britain is now blocked in a stagnation.
Stagnation risk
“The economy is being contracted, the jobs are lost at a dizzying rhythm and, in the meantime, inflation increases without any sign of having still reached the peak. This represents a serious dilemma for the bank of England. The monetary policy committee (MPC) cuts the rates now in the hope that the inflation is expected later during the year? Or is waiting for fear of feeding further? A cut in this meeting is imminent, but the data indicate that further reductions in the rates will probably be very gradual “.
