Written by Shane Balkham
Following on from last week’s update, there was some good news on inflation in the UK, with a downward surprise for the headline Consumer Price Index (CPI) rate. Wednesday’s data publication showed CPI dropping to 3.4% year-on-year to the end of February, however 3.4% is still markedly above the Bank of England’s (BoE) target rate of 2%.
Additionally, there is further good news on the horizon, with expectations that UK inflation will continue to fall over the coming months. Drops in both energy and food prices are expected to take inflation much nearer to the 2% target, which matches the BoE’s own projections that were published last month.
Coincidentally, we had the BoE’s Monetary Policy Committee (MPC) meeting the following day, where expectations were for rates to remain on hold, but hoping for clearer signs of when the Bank would consider rates to be cut. Expectations were met, with the Committee voting to keep rates on hold, however there were significant changes to how the individual members voted.
Since the previous meeting, two members moved from preferring to raise rates to joining the majority for keeping rates on hold. One member continues to be an outlier, preferring a rate cut for the second consecutive meeting. This shift could move momentum towards a rate cut being sooner rather than later. Whilst Andrew Bailey, Governor of the BoE, refused to be drawn on when the first rate cut would be actioned, he has previously been quoted as saying that cuts could come before the inflation rate hits target.
In comparison to the decision to keep rates on hold in both the UK and the US, the Swiss central bank cut rates, and in Japan we had the first rate rise for 17 years. For all major central banks there is a tightrope balancing act between creating price stability and encouraging economic growth. In this environment, where global economies and central banks are moving different cycles, a diversified portfolio is crucial.
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