Week Ahead

US inflation uptick puts UK rate-setters on alert

Joe Biden
Joe Biden’s stimulus package is thought to be behind inflationary pressures

Expectations of interest rate cuts in the US are diminishing after inflation gathered pace and kept analysts in the UK on tenterhooks about any similar price growth pressures that could impact on the Bank of England’s next move.

At the start of the year, experts had been forecasting up to six interest rate cuts in the US. However, inflation is yet to fall back to the Federal Reserve’s 2% target, and instead increased by 3.4% in the first three months of 2024. This is compared to an increase of 1.8% in the final three months of 2023.

Analysts are now talking about interest rates going up even though current policy has contained expansion.

Stuart Cole, chief macro economist at Equiti Capital in London, said the US Federal Reserve, which sets interest rates, was “now finding itself caught between a rock and a hard place”.

“The growth numbers suggest monetary policy has worked its magic and the Fed’s foot on the monetary brake can be eased somewhat,” he said.

“But the inflation figures suggest otherwise, and potentially even point to the need for a further tightening.”

The rate fixing committee at the Federal Reserve, the US central bank, meets on Thursday and is expected is keep the upper band of the Fed Funds rate at 5.5%, its level since August 2023.

Analysts at AJ Bell said: “The US economy continues to prove more robust than expected, perhaps due to ongoing fiscal stimulus from the Biden administration, the cancellation of more than $100 billion in student debt, steady wage growth amid tight labour markets and ongoing asset price inflation (notably in the US equity market).

“For all of the Fed’s jawboning, or perhaps because of it, US financial conditions are no tighter now than they were five years ago, according to the Chicago Fed National Financial Conditions and St. Louis Fed Financial Stress indices.

“Financial markets are busy pricing out interest rate cuts. They began the year looking for six one-quarter point interest rate reductions from the Fed, with the first one in March.

“The CME Fedwatch service now suggests markets are looking for two cuts, down to 5.00%, by the end of the year, with the first one coming in September, and just two more by autumn 2025.”

There is speculation that because inflation in the UK is falling that the Bank of England will not wait for the US to act and will still cut the base rate in June.

Next and STV on corporate agenda

The corporate agenda includes a trading update from Next when there may be further news on its interest in further consolidation in the retail sector. In recent times Next has acquired FatFace, Joules and Made.com, the online furniture retailer. Cath Kidston and JoJo Maman Bébé, the maternity retailer, are also part of the group’s portfolio and it has developed partnership deals with Victoria’s Secret and Gap.

Investors in the broadcaster and programme maker STV will be keen to hear about progress on new commissions following a string of successes that have helped underpin growth.

There is unlikely to be any word on a new CEO to replace Simon Pitts who announced last month that he was leaving to join media and entertainment group Global.

DIARY

Monday 29 April

  • Trading statement from Beazley

Tuesday 30 April

  • Full-year results from Whitbread and Card Factory
  • Trading updates and quarterly results from HSBC, Glencore, Prudential, Coca-Cola HBC, Rotork and Howden Joinery
  • British Retail Consortium shop price index
  • UK mortgage approval
  • Chinese purchasing managers’ indices (PMIs) for manufacturing and services
  • EU inflation

Wednesday 1 May

  • Full-year results from HSS Hire
  • Trading updates and quarterly results from GSK, Next, Haleon, Smith & Nephew, Computacenter, Aston Martin Lagonda and Domino’s Pizza (UK)
  • STV AGM
  • US Federal Reserve monetary policy decision

Thursday 2 May

  • Trading statements and quarterly results from Shell, Standard Chartered, Melrose Industries, Endeavour Mining, Hiscox, Spectris, Lancashire, Grafton, Morgan Sindall, TI Fluid Systems and SIG

Friday 3 May

  • Full-year results from Trainline
  • First-half results from Smiths News
  • Trading statement from InterContinental Hotels
  • UK purchasing managers’ index (PMI) for services
  • US non-farm payrolls
  • US wage growth
  • US unemployment rate


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