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Key events

The Bank of England is likely to exercise caution ahead of the general election on 4 July, suggests Laura Suter, director of personal finance at AJ Bell:

“It’s highly likely the Bank will want to wait to see the outcome of the election and the final economic plans before making that first cut.

“With no meeting in July, that means all eyes are now firmly on the August MPC meeting for our first potential cut to rates.”

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None of the 65 economists in a Reuters poll last week said they expected the BoE to cut interest rates today.

So it would be a shock if the BoE chose to lower Bank rate to 5% at midday.

Joshua Mahony, chief market analyst at Scope Markets, says pacy service sector inflation will worry the Bank:

Looking ahead, the Bank of England provide the main event of note for European traders, with the MPC having to weigh up just how long they wish to hold off before pulling the trigger.

With inflation back down to the 2% target, the justification for keeping rates at a restrictive sixteen-year high of 5.25% will be questioned by many.

Nonetheless, the fact that UK services inflation remains at a lofty 5.7% will not be lost on BoE members, with core inflation remaining well above target at 3.5%. Despite yesterday’s drop down to 2% for UK inflation, markets have in fact largely written off a rate cut today, instead looking for the first move to come in September.

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Updated at 11.25 CEST

Analysts: don’t expect a UK rate cut today

The Bank of England may not be convinced that inflation will stick sustainably at its 2% target this year, explains Lindsay James, investment strategist at Quilter Investors:

The Bank of England is highly likely to keep rates unchanged at today’s MPC meeting, in response to two sets of inflation prints that have been published since the previous meeting, both of which showed month-on-month inflation figures which remain much higher than needed for inflation to remain at 2%.

Similarly, with wages still growing in the region of 6%, as they play catch up with a rising price level, services inflation is going to be slow to come down from its current level of 5.7%, feeding through to a core inflation rate of 3.5%, again well above the target level. Ultimately, in a mildly improving economic environment with consumer confidence now picking up from low levels, the central scenario looks likely to be that inflation drifts higher through the remainder of the year.

With the Bank of England having previously emphasised the requirement for inflation to return to 2% sustainably, the evidence is not yet there that it has done that, and may not be for some months yet.

That makes the likelihood of a rate cut this summer increasingly low, something already recognised by the market which prices in the first rate cut only by November.

Marc Ostwald, chief economist and global strategist at ADM Investor Services says the Bank of England is ‘severely constrained’ by the election campaign:

The MPC meeting is severely constrained by the general election campaign, per se the vote is likely to remain 7-2 in favour of holding rates at 5.25%, and the statement likely little changed, with particular emphasis placed on incoming data in terms of the rates outlook.

The MPC may well be quite relieved that it is constrained at this meeting, with the run of recent data proving rather mixed in terms of the inflation, wage and growth outlooks. There will be particular attention given to the minutes, given that the BoE has been on ‘radio silence’ since the election was called.

ShareBoE risks keeping rates too high for too long

Back in early May, Bank of England governor Andrew Bailey indicated that a rate cut could come today, telling reporters that “a change in bank rate in June is neither ruled out nor a fait accompli.”

But investors lost confidence in a June rate cut on 22 May, when service sector inflation was clocked higher than expected, and Rishi Sunak called the general election.

The Bank of England has been keeping quiet since the campaign began, to avoid the appearance of political interference, which has made it harder for economists to gauge the Bank’s thinking.

Neil Wilson, analyst at Markets.com, fears the Bank may delay cutting interest rates for too long, saying:

Why not cut now? Wage growth is still strong at around 6%, services inflation at 5.7% – there are reasons to be cautious. But the labour market is softening – unemployment unexpectedly jumped to a two-year high 4.4%, the biggest monthly jump since the GFC, outside of the Covid era. And there is an election coming.

I think the BoE could surprise with a cut today, but an election two weeks away means this is not likely. What it should do and what it will likely do are not necessarily the same thing. My worry is that the BoE stays too high for too long because it is looking at the lagging wage data rather than the weakening labour market. I fail to see any reason for the Bank to be holding off any longer – time to take a leaf out of the ECB playbook and trim some of the restriction.

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Short-term UK mortgage rates have dipped slightly today.

Data provided Moneyfacts reports that the average 2-year fixed residential mortgage rate has dropped to 5.96%, down from 5.97% yesterday.

The average 5-year fixed residential mortgage rate today is unchanged, at 5.53%.

Yesterday NatWest announced it was cutting its fixed-rate deals today, by up to 0.17 percentage points.

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The Bank of England is likely to cut interest rates in August, rather than today, predicts Barret Kupelian, chief economist at PwC:

“With headline inflation hitting its target rate, the Bank’s Monetary Policy Committee is nudging closer to cut its policy rate. The tide is clearly turning, but we still feel that the Bank is not quite there yet.

Services inflation continues to remain significantly above its own projections (5.7% vs 5.3%), in part due to a tight labour market and also because of erratic factors.

“The Bank is therefore likely to keep interest rates unchanged today.

“The Monetary Policy Committee will next meet in August, armed with a new set of forecasts and an additional inflation reading, which will help clarify its thinking on how to proceed. Assuming no surprises, we think the Bank will cut rates in August.”

ShareNo change in Norway

More central bank action in Norway… but this time, there’s no change.

Norges Bank has decided to leave its policy rate unchanged at 4.5%, citing concerns about inflation.

Norges Bank says high interest rates have cooled the economy, slowing growth and inflation, but prices are still rising faster than its target.

It adds:

Based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will likely be kept at that level for some time ahead.

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Updated at 10.11 CEST

Switzerland cuts interest ratesThe Swiss National Bank (SNB) in Bern, Switzerland. Photograph: Denis Balibouse/Reuters

Newsflash: Interest rates have been cut….. in Switzerland.

The Swiss National Bank has decided to cut its key interest rates from 1.5% to 1.25%, at its monetary policy meeting today.

The SNB says that underlying inflationary pressures have decreased, meaning it can maintain appropriate monetary conditions with lower interest rates.

It explains:

Inflation has risen slightly since the last monetary policy assessment, and stood at 1.4% in May.

Higher inflation in rents, tourism services and oil products has contributed in particular to this increase. Overall, inflation in Switzerland is currently being driven above all by higher prices for domestic services.

The decision has knocked the Swiss franc:

This is the second rate cut by the SNB this year; in March it became the first major central bank to lower borrowing costs in the current cycle.

ShareYouGov shares plunge after profits warning

Ouch! Shares in polling company YouGov have plunged by a third in early trading, after it shocked investors with a profits warning.

YouGov told the City this morning that sales bookings have been lower than anticipated, since it reported its half-year results (for the six months to 31 January) in March.

Growth in the second half of its financial year has been “below expectations”, despite an investment push that was meant to drive activity.

YouGov says:

We continue to see increased demand for our customised research solutions, however, sales in our Data Products division have remained slow and we continue to see declines in fast-turnaround research services. Geographically we have seen challenges in EMEA, particularly in the DACH region.

[The DACH region, in case you were wondering, is Germany, Austria and Switzerland, while EMEA covers, Europe, the Middle East and Africa].

YouGov now expects full-year adjusted operating profits of £41-44m, down from over £48m in 2023.

ShareSainsbury’s sells banking arm to NatWest

Elsewhere in the financial sector, Sainsbury’s has sold its banking arm to NatWest.

The deal will give NatWest around one million customer accounts, along with £2.5bn of customer assets (including loans and credt card balances) and £2.6bn of customer deposits.

I say “sold”… but Sainsbury’s Bank are also paying NatWest £125m as part of the deal…

Paul Thwaite, NatWest Group CEO, says:

This transaction is a great opportunity to accelerate the growth of our Retail Banking business at attractive returns, in line with our strategic priorities.

As well as a complementary customer base, the transaction is expected to add scale to our credit card and unsecured personal lending business within existing risk appetite.

Sainsbury’s told the City it expects Sainsbury’s Bank to return it excess capital of at least £250m, which will be redistributed to its shareholders.

Shares in Sainsbury’s have jumped 1.6% in early trading.

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It would be a major shock if the Bank of England changed interest rates today.

The money markets currently indicate that ‘no change’ is a 99% chance.

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Mohamed El-Erian, chief economic adviser to Allianz, and president of Queens’ College, Cambridge, suspects the Bank of England may be cautious about signalling future interest rate cuts today.

Currently, the money markets expect the first rate cut to come by November, with a second priced in by February 2025.

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Updated at 08.50 CEST

The Bank of England decision isn’t the only important event on the calendar today, of course…

As professor Andrew Angus of Cranfield School of Management, reminds us:

“While England football fans will be hoping for a good result on Thursday evening, the Bank of England won’t want to score any own goals earlier in the day. Expect the monetary policy committee to err on the side of caution, keeping interest rates unchanged.

While a good performance from England and Scotland in the Euros could energise the economy, many households are still reeling from stubborn inflationary pressures, meaning interest rates are now unlikely to fall until late summer.”

ShareING: Three UK rate cuts this year (probably not starting today)

Dutch bank ING predict the first UK interest rate cut will come in August, with a total of three cuts this year.

But having said that, ING’s developed markets economist, James Smith, suggests the markets may be underpricing the chances of a rate cut today.

He explains:

Investors reckon the Bank is highly unlikely to cut interest rates in an election campaign. We wouldn’t be so sure of that.

We don’t expect a rate cut, but markets are under-pricing the chances.

The good news for the Bank is that the issue of rate cuts has avoided becoming politicised in a way that it might do in the US presidential election campaign later this year, even if other areas of BoE policy (related to reserve remuneration) are coming under scrutiny.

Our takeaway from the last meeting in May was that June’s decision would be on a knife-edge, and that calculation probably hasn’t changed as much as markets might think. Governor Andrew Bailey, we felt, sounded like he would have voted for a rate cut in May had his committee been more on board with it. Still, our base case is a pause this month.

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Updated at 11.01 CEST

Introduction: Bank of England decision today

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Rishi Sunak’s hopes of a pre-election interest rate cut are likely to be dashed today, in one of the most politically sensitive monetary policy decisions in years.

The Bank of England will set interest rates at noon, and is widely expected to leave them on hold at 5.25%, a 16-year high.

Yesterday’s fall in inflation, back to the BoE’s 2% target, gives its monetary policy committee (MPC) a good reason to consider cutting rates, to take some of the pressure off borrowers.

However, policymakers will have noted, glumly, that inflation in the services sector is running much hotter, with prices up 5.7% in the last 12 months.

Sanjay Raja, Deutsche Bank’s chief UK economist, says:

While calls for an imminent rate cut will grow, given headline CPI’s descent to 2%, there’s likely to be growing concerns around the stickiness surrounding services inflation.

There may not be unanimity about today’s decision. At the last meeting, in May, two MPC members voted to cut rates, but were out numbered by their seven colleagues who voted for no change.

City economists expect another 7-2 split today, with Swati Dhinga and deputy governor Dave Ramsden expected to again push for a rate cut.

The minutes of this week’s meeting will also be published at midday, giving an insight into the Bank’s views about the health of the economy, and the prospects for growth and inflation.

Conservatives may be disappointed if the Bank leaves rates on hold again today, as some – such as former Cabinet minister Sir Jacob Rees-Mogg – have been calling for rate cuts this year.

An interest rate cut would, arguably, bolster Sunak’s claims that the economy has turned the corner.

But the Bank is likely to be concerned that inflationary pressures could still be lurking in the economy.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:

First, services inflation remains high – perhaps too high near 6% – to let the BoE cut rates with a peace of mind as services make up around 80% of the British economy.

And second, consumer prices could rapidly rebound if natural gas market tightens as traders rush to replenish their stockpiles before winter.

As such, if the BoE doesn’t announce a rate cut today, it’s not because they don’t want to put their nose into the country’s political affairs with the upcoming general election, but it’s mostly because the underlying inflationary factors are not yet convincing enough to allow them to do so.

It’s a busy day for central bank news, with both Switzerland and Norway also setting interest rates

The agenda

7am BST: European car sales for May

8.30am BST: Swiss National Bank interest rate decision

9am BST: Norwegian interest rate decision

Noon BST: Bank of England interest rate decision

1.30pm BST: US housing starts for May

1.30pm BST: US weekly jobless data

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