LGT Navigator

UK inflation refuses to fall ahead of central bank decision

Consumer price growth in the UK remained high on Wednesday at more than four times the Bank of England’s (BoE) 2% inflation target. That raised prospects of an even higher-than-previously-expected rate increase from the central bank this afternoon. Additionally, comments by US Federal Reserve Chair Powell on Wednesday weighed on stock market sentiment.

Shane Strowmatt, LGT
Temps de lecture
5 minutes
UK Inflation
© Shutterstock

The Consumer Prices Index in the UK rose 8.7% in May, the second month in a row at that pace. Core inflation, which strips out food and energy prices, accelerated to 7.1% from 6.8%. Both headline and core inflation were higher than market expectations. The UK is battling the highest inflation among large, developed economies despite the BoE raising rates 12 times in a row to 4.5%. The central bank’s last interest rate hike was 25 basis points in May, but given the high inflation the prospects of a 50-basis-point increase on Thursday have increased. In addition to high inflation and soaring mortgage rates, the UK is also struggling with poor public finances as government debt reached more than 100% of economic output, the Office for National Statistics said in a separate report Wednesday.

In New York, stock markets were dragged down after Fed Chair Jerome Powell doubled down on his hawkish message from the previous week. Powell shattered any hopes of quick rate cuts saying it would be a long time before inflation falls to the Fed’s 2% target in comments in the US House of Representatives on Wednesday. Thursday, he is scheduled to speak in the Senate. The Dow Jones Industrial lost 0.3% to close at 33,951.52 points on Wednesday. The S&P 500 fell 0.52%, finishing at 4,365.69 points. After several weeks of outperformance, the Nasdaq-100 lost more than the other major indices, dropping 1.35% to 14,867.45 points.

Stock markets in the Asia-Pacific region continued with the negative sentiment out of the US on Thursday. Japan’s Nikkei fell 0.5% and Australia’s S&P/ASX 200 plummeted 1.6%. South Korea’s Kopsi was trading up 0.4%. Markets in Hong Kong and mainland China were closed on Thursday due to a holiday.

The Swiss National Bank (SNB) said in its 2023 financial stability report that it was learning lessons from the fall of Credit Suisse, which led to its acquisition by UBS. For example, the central bank said while capital requirements are necessary for ensuring bank stability, they are not a sufficient measure alone. It also made comments critical of AT1 capital instruments. Today, the SNB is set to announce its latest interest rate decision at 9:30am. Despite inflation slowing to 2.2% - much lower than in the eurozone - investors expect the SNB to raise interest rates by at least another 25 basis points.

Corporate news in focus: Annual general meeting Nvidia.

Economic data in focus: Swiss National Bank interest rate decision (09:30 CET), Bank of England interest rate decision (13:00), weekly US initial job claims (14:30), US Federal Reserve Chair Jerome Powell testifies in US Senate.

LGT helps you make informed investment decisions

All about global economic and market trends at a glance

You can also follow us on Facebook or LinkedIn – or visit Insights and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.

Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

Prendre contact