The costs of borrowing falls
The path of interest rates in the UK continues to be downwards, according to Andrew Bailey of the Bank of England. The base rate was cut by 0.25% yesterday, down to 4%. However, he remarked that there was now genuine uncertainty as the Monetary Policy Committee (MPC) sees risks around inflation overshooting its forecasts, and conversely, the risk of business growth undershooting.
Interestingly, despite the reduction, the fact that it was a tight call led to both the pound and gilt yields moving higher.
The question now is, will US interest rates follow suit?
Last week, shortly after I released the last Market Update, US stocks sold off as investors reacted to weak employment data, new trade deals and a Federal Reserve board member resigning. When I was out and about this week, a couple of people mentioned that the markets had corrected. My retort was that this is what markets do, and it should be expected. The reality is that it was just a short-lived pull-back. The problem is that since shortly after Liberation Day, when the market began its recovery, there has been very little volatility, and it has become normalised in our psyche.
Tariffs are in the headlines again, with Switzerland being heavily penalised on luxury goods. This week, 90 countries have seen last week’s tariff notices come into effect. Apparently, circa one-third of UK companies have been impacted by export tariffs, but we must bear in mind that these levies are only at the 10% level.
Bank shares got a boost after the ruling from the Supreme Court around car financing. Every week, we give credence to AI developments, and I thought it useful to look under the bonnet and assess what countries and companies are dominant in this space. I wonder if you can guess who dominates?
… and the big question is, can AI replace Gary Neild?
This week’s content:
- The UK bank base rate falls
- Will the US follow suit?
- One-third of UK exporters are impacted by tariffs
- Bank shares get a boost
- A two-horse race
- Can AI replace Gary Neild?
- AI’s helicopter view
- Summary
The UK bank base rate falls
The vote for an interest rate cut was close, with a 5-4 split in favour. Apparently, this was achieved in the second round of voting as the initial round threw up a stalemate of 4-4-1.
The markets don’t like surprises and hence why the pound and gilt yields rose.
The Monetary Policy Committee (MPC) stated, “a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate.”
Creating levels of uncertainty is the threat of stagflation, weak growth and the unemployment rate data. Some analysts believe this interest rate reduction has come too late, whilst others warn that although unemployment is rising, inflation risks may scupper any further reductions this year. Add in the prospect of higher taxes and weaker consumer spending, then it is plain to see why the MPC didn’t fully commit to the future landscape.
Continues…
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