Bank of England rate-setter Huw Pill and its Chief Economist has thrown the proverbial cat amongst the pigeons saying that the timing of the UK’s first rate cut was an ‘open question’.
His comments are widely believed by pundits to have sent the pound to a four-month high versus the doallar ar £1.28 this morning. He spoke up just 24 hours after another member of the monetary policy committee ruled out personal support for a reduction on 1 August. Jonathan Haskel said too many stubborn inflationary pressures remained.
Walter Avrili, Technical Director at Mortgageforce, says: “Well it feels like one step forward and two steps back!
“This morning the yield on the UK’s 10-year Gilt increased to 4.15% as expectations for a summer rate cut waned.
“In May, the UK economy expanded by 0.4%, exceeding the anticipated growth of 0.2%, thereby reducing the likelihood of an August rate cut.
“Huw Pill, the Bank of England’s chief economist, echoed this sentiment, highlighting that although headline inflation reached the 2% target in May, inflation in the services sector and wage growth remained ‘uncomfortably strong.’”
CLEAR EVIDENCE
Avrili adds: “Meanwhile, in the US, FED Chairman Jerome Powell emphasized the necessity of clear evidence of inflation meeting the 2% target before considering rate cuts, cautioning against delaying action or easing policy too minimally.”
Indeed, the annual inflation rate in the US in June dropped to 3% for the third consecutive month, marking the lowest rate since June 2023. This decline follows a rate of 3.3% in May and is below the projected 3.1%.
Avrili says: “Subsequently the yield on the US-10 year Treasury note fell by 10bps to 4.20% marking its lowest level in over three months. This drop followed the softer inflation data, which reinforced expectations that the FED will cut interest rates this quarter.
“And how things change in matter of a few hours as this afternoon the UK’s 10-year gilt yield fell below 4.1%, marking a two-week low, driven by a decline in US Treasury yields amid expectations of a FED rate cut in September.
“And after being up this morning swaps have taken a marked downward trajectory this afternoon.”
