Earlier this week, US inflation fell again from 3.2% pa in October to 3.1% pa in November, prompting speculation that the Federal Reserve would reduce interest rates this week.
In the UK and Europe, economies are slowing in UK and Germany and jobs data is showing a slowdown in wage increases and emploment. Again, prompting speculation that the ECB and the Bank of England would cuts interest rates. This is turn pushed stock markets up all across the West but as we have suggested, perhaps speculation of rate cuts was premature.
Wednesday: the Federal Reserve decided to hold interest rates at at range of 5.25% pa to 5.5% pa. Despite inflation at 3.1% pa creeping closer to its 2.0% pa target, food inflation is still running at 4.0% pa. That said, the Fed did offer a steer that it would look to reduce interest rates in 2024, prompting growth in stock markets.
Thursday: the Bank of England Monetary Policy Committee (MPC) voted on a 6:3 ratio (6 voting to hold rates and 3 voting to increase rates), to keep interest rates at 5.25% pa but with a steer that they are likely to keep interest rates at this level until late 2025 and potentially 2026. This puched FTSE 100 back down as the £ strenghtened. In Europe, the ECN followed shorly afterwards with a decsion to hold rates at 4.0% pa and are also committed to get inflation down to 2.0% pa (trend).
None of the above was a surprise to us or most market commentators. That said, we can still see the ECB cutting rates before the Bank of England to stave off recession in Germany (the EUs economic backbone).
We sincerely hope that central banks are starting to control inflation and whilst we do not see UK inflation falling as quickly as the US oe EU goven the drag effect of Brexit, we do believe that the UK will be in a much stronger place, this time next year.