Commenting on the interest rate hold from the Bank of England, William Marshall, Chief Investment Officer – Hymans Robertson Investment Services (HRIS) says:

“The Bank of England looks to be edging closer towards its first interest rate cut of this cycle – albeit this meeting was seen as too soon. Some of the recent key drivers of inflation, like energy and food, have all but disappeared. Only the services sector is contributing meaningfully to inflation, which is why the BoE remains so focused on wages as one of the key inputs into services inflation.

“The setbacks that the US has experienced with inflation data over the last few months has pushed back the Federal Reserve from cutting soon. There is conjecture that this will delay other central banks like the BoE and ECB, who wish to avoid weaker currencies raising import prices. However, the UK economy is far weaker than the US and members of the MPC have tried to give the impression that they move fully independently of Fed policy. A slower Fed may mean the BoE will move more carefully but it shouldn’t stop the cuts altogether.

“The prospect of near-term interest rate cuts increases the attractiveness of bonds (where higher rates can be locked in) over cash for investors.”

Commenting on the Bank of England’s interest rate hold at 5.25%, Chris Arcari, Head of Capital Markets, Hymans Robertson, said:

“As expected, the Bank of England (BoE) has left rates unchanged at a 16-year-high of 5.25% pa this morning. Despite a small upside surprise in March’s release, year-on-year headline CPI inflation has continued to moderate in recent months, to 3.2%. Indeed, energy price falls and their interaction with the UK price cap, alongside goods and food price disinflation, mean comparable year-on-year headline CPI is likely to fall below target in the coming months.

“However, year-on-year core inflation, which excludes volatile energy and food prices, is running at 4.2% year-on-year – more than double the BoE’s target. There remains uncertainty over how quickly inflation will reach its target on a sustainable basis with services and wage inflation both running at 6% year-on-year and slowing less sharply.

“Nonetheless, we continue to expect the BoE to cut rates this year. We expect the bank to tread cautiously by reducing rates slowly to less restrictive levels given the massive overshoot of inflation in 2022 and 2023. Markets have also coalesced around this view in recent months – markets were somewhat optimistically implying between six and seven 0.25% pa interest rate cuts at the start of the year. These expectations have now moderated to, what is in our opinion, a more realistic expectation of between one and two 0.25% pa cuts in 2024.”