Article last updated 22 July 2025.
The Bank of England is expected to hold interest rates at 0.5% when its monetary policy committee meets on Thursday. For the past few weeks, Governor Mark Carney has backpedalled on a May hike following a run of poor economic data. With the committee gun-shy about pulling the trigger when economic data are glum, it could be some time before we see another rate rise. GDP growth has been trending downward for a year now, posting a paltry 1.2% annual expansion in the first quarter. Inflation is expected to continue falling away from its 3.1% peak in late 2017 and house prices appear to have stagnated. The unemployment rate is expected to tick up slightly next week, from 4.2% to 4.3%.
However, as gloomy as all that seems, things can easily turn around. If inflation continues to melt away then wages will be growing in real terms, helping boost spending power for many Britons. After a particularly bitter winter, a good sunny spring and summer could lift people’s spirits and their consumption. It’s trite, but true. Economies tend to boil down to a matter of confidence and optimism, and we all know how much brighter the world seems on a fine day.
We will be watching to see how the BoE’s monetary policy committee is split when voting on Thursday. A substantial split would lead us to believe the BoE remains relatively hawkish; virtually no dissent could mean rate tightening is off the agenda until the economy is humming along once again. No-one on the committee will want to suffocate a burgeoning recovery in the British economy by raising rates.
As for the US, its monetary policy is in an altogether different place. Interest rates have a significant upward influence from heightened US government spending. Following a blow-out budget and tax-cut, fiscal deficits are set to march swiftly higher. That means a substantial step up in treasury issuance, which pushes yields higher. This week there will be $73bn of 3, 10 and 30-year bonds sold, 10% more than last quarter. Counterintuitively, the April net tax take was the highest in 17 years. However, this is typical following a significant – and hurried – change to the tax code
With fiscal pressures flowing into interest rate markets, the fed will be less pressured to raise its own fed funds rate. Also, US wage growth slowed slightly on Friday in a relatively tepid nonfarms payroll release. The notoriously volatile jobs number doesn’t concern us too greatly – the unemployment rate still dropped below 4% for the first time since 2000. And wage growth is still 2.6%, not fantastic but at least higher than inflation.
Source: FE Analytics, data sterling total return to 4 May
Where will the chips fall?
It’s been quite an up and down week. First quarter company earnings were very good on the whole, although investors fear it may be the last good quarter for a while. Any business that was less than bouncy about the future was sold aggressively, regardless of how strong the current numbers looked.
The tariff tangle between China and the US threatens many industries. Given the complicated web of global supply chains, most companies will be impacted by higher costs of trade between the world’s two largest economies. The American negotiation tactics have been erratic, while China has effectively been calling every raise thrown at it. Chinese officials have been loath to add to Donald Trump’s rhetoric, instead calling a trade war unwanted. However, they have coolly mirrored every escalation by the US. As with all of Mr Trump’s endeavours, it’s uncertain how this will end.
Added to that, the time is approaching when the central banks of Japan and the European Union will begin unravelling their extraordinarily loose monetary policies. This is not likely to happen tomorrow, but as the nations’ economic health improves, the inevitable day nears. Tightening – or less-loose – policies would have a significant effect on global liquidity and therefore bond and equity prices.
Bonds
UK 10-Year yield @ 1.40%
US 10-Year yield @ 2.95%
Germany 10-Year yield @ 0.54%
Italy 10-Year yield @ 1.79%
Spain 10-Year yield @ 1.29%
Economic data and companies reporting for week commencing 8 May
Tuesday 8 May
Earnings
EU: GER: Balance of Trade, Industrial Production
Full-year results: Horizon Discovery Group, Faron Pharmaceuticals, Vertu Motors
Trading statement: Hiscox, William Hill
Wednesday 9 May
US: MBA Mortgage Applications, Producer Price Index, Wholesales Inventories, Crude Oil Inventories
Interim results: Compass Group Imperial Brands, TUI
Quarterly results: Coca-Cola HBC
Trading statement: Barratt Developments, G4S, Greggs, IFG Group, J D Wetherspoon,
Marshalls, OneSavings Bank, Provident Financial, Renishaw, Vertu Motors
Thursday 10 May
UK: RICS Housing Market Survey, Industrial Production, Manufacturing Production
US: CPI
Full-year final results: BT Group, Stobart Group
Quarterly results: Arrow Global Group
Trading statement: Beazley, Coca-Cola HBC, Derwent London, Hansard Global,
ITV, Morrison (Wm) Supermarkets, Next, Rathbones Group, RSA Insurance Group, Sabre Insurance Group, Sig, Superdry, Titon Holdings,TP ICAP
Friday 11 May
US: Import and Export Price Indices, University of Michigan Confidence
Full-year final results: TalkTalk Telecom
Julian Chillingworth
Chief Investment Officer
