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Bank of England signals it is ready to cut interest rates in the near future

Although the Bank of England kept interest rates on hold, as widely expected, it held out the prospect of monetary easing in the near future. Stock prices in London rose following the decision, while UK government bond yields were briefly depressed and sterling came under pressure. In Asia, most stock markets followed Wall Street's positive lead at the end of the week, driven by renewed hopes of an imminent easing of interest rates by the US Federal Reserve. 

Alessandro Fezzi, LGT
Temps de lecture
5 minutes
Bank of England
© Shutterstock

At yesterday's interest rate decision, the Bank of England hinted at an imminent easing of interest rates, but left its base rate unchanged at 5.25%. This is the sixth time in a row that the central bank has left its base rate unchanged. The reason for the imminent easing of monetary policy is declining inflation. Since peaking at around 11% in 2022, inflation in the UK has fallen significantly. The latest rate of consumer price inflation was 3.2% in March. The Governor of the Bank of England, Andrew Bailey, was optimistic that inflation would fall close to the Bank's target of 2% in the coming months. There was encouraging news, Bailey said. While seven members of the Monetary Policy Committee voted to keep rates on hold, two members voted for immediate easing - up from just one at the last rate decision. 

In Asia, the Hong Kong stock market led the way on Friday with a daily gain of 1.6%. This took the Hang Seng Index to its highest level in nine months. A Bloomberg report that Hong Kong regulators are considering a proposal to exempt retail investors from paying tax on dividends from Hong Kong shares bought via Stock Connect had a positive impact. In contrast, the CSI 300 in mainland China lost 0.3%. Tokyo's Nikkei 225 gained around 0.7%. According to the latest data, household spending rose 1.2% month-on-month, much more than expected (consensus -0.3%) and the annualised decline of 1.2% was less than the 2.4% forecast. In Seoul, the Kospi rose 0.7% while the small cap Kosdaq fell 0.6%. Australia's S&P/ASX 200 was up around 0.3% heading into the weekend.

On the New York Stock Exchange, the data from the US labour market underpinned hopes of an imminent easing of monetary policy. The Dow Jones Industrial rose by almost 0.9% on Thursday and closed at 39,387.76 points, up for the seventh trading day in a row and close to the record high reached at the end of March. The broad S&P 500 gained 0.5% and ended trading at 5214.08 points, while the indices on the Nasdaq rose only moderately by around 0.2%. This was due to a lower-than-expected sales forecast from chip developer Arm, which also weighed on other chip stocks.

The latest data on the US labour market confirmed expectations of a slowdown. The weekly initial jobless claims rose significantly more than expected. Last week, the number of applications increased by 9000 to 224,000, as reported by the Department of Labour in Washington. On average, the market had expected a fall to 212,000. The weekly initial claims are regarded as a timely indicator for the labour market.

On the bond market, the yield on ten-year US Treasuries remained below the 4.5% mark - currently 4.46%. The US dollar weakened against the euro in the face of renewed hopes of an interest rate cut.

Corporate news in focus: No potentially market-moving corporate news today.

Economic data in focus: UK trade balance and industrial production, US Uni Michigan consumer sentiment survey.

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

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