The Bank of England's monetary policy committee is expected to leave rates on hold today, despite a mixed economic landscape. The FTSE 100 has been called 40 points lower on the futures market, a day after battling to a 14.4-point gain at 10,508.61 by the close. The market's reaction to yesterday's Federal Reserve meeting sent bond yields higher, with the tech-heavy Nasdaq leading the losses, falling 1.3%. The S&P 500 dropped 1.2% and the Dow Jones 1%. The Magnificent Seven tech giants fell nearly 3% and SpaceX also had its first down day, losing almost 5%. The Fed's hawkish policy announcement on inflation concerns sent the US 2-year yield to the highest levels in almost one-and-a-half years, and the spread between the US 2- and 10-year yields fell to the lowest levels in a year, indicating a potential recession. The Bank of England's decision comes as the UK unemployment rate remains at 4.9%, with private sector regular pay growth slowing to 2.9% in April from 3.1%. The MPC noted inflation had fallen to 2.8%, as seen in yesterday's data, and warned that higher energy prices could still feed through into wages and broader inflation if they persist. The BoE statement from the MPC meeting says policymakers balanced signs of easing inflation against lingering uncertainty over the economic impact of the Iran war. The 7-2 vote saw chief economist Huw Pill and external member Megan Greene back a quarter-point increase to 4%. However, the BoE governor, Andrew Bailey, sees the situation as unpredictable, with the risk of energy prices remaining elevated for an extended duration. He is content with holding the 3.75% bank rate, as the risks to inflation and interest rates are on the upside, with the sterling yield curve appearing to be accounted for more by risk premia than expected rates. The MPC stands ready to act as necessary, with a slightly stronger statement of the case for tolerating an inflation overshoot for longer if higher inflation were to reflect mainly direct energy effects. The market's reaction to the BoE's decision will be crucial, as it will determine the trajectory of the UK economy in the coming months.
