Daily Times

Europe’s main stock markets rose on Thursday, with the region’s key event an expected interest rate hike from the Bank of England.

With UK annual inflation stuck above 10 percent, the BoE is widely forecast to hike borrowing costs once more — by a quarter-point to 4.5 percent in a decision due at 1100 GMT.

“UK inflation remains stubbornly high,” noted Victoria Scholar, head of investment at Interactive Investor.

This is “at odds with the US and Europe which have seen their inflation rates start to come down”.

Official data on Wednesday showed US inflation had dipped further but only marginally, suggesting the Federal Reserve still had much to do in its battle against rising prices. Adding to the uncertainty was the battle to raise the US debt ceiling to avert a destabilising default, with Democrats and Republicans unable to reach a deal just weeks before the country runs out of cash to pay its bills.

The US consumer price index reading was the lowest in two years and a tad below what was expected, giving the Fed a little room to take a break in its long-running rate hike campaign.

However, the figure came after last week’s stronger than expected print on US jobs creation that showed the world’s top economy remained strong, while observers said further evidence was needed to show that rate hikes were bearing fruit.

The 4.9-percent inflation rise in April was far above the Fed’s stated goal of two percent, which some analysts said meant it was unlikely officials would consider cutting rates at the end of the year, as some investors had been betting on.

This helped to support the dollar against major rivals Thursday.

“We need more… prints to clarify that inflation is definitely declining,” said Priya Misra at TD Securities.

Still, Wall Street largely cheered the latest data, with the S&P 500 and Nasdaq rallying on Wednesday, helped by a bump in rate-sensitive tech giants.

Capital Economics analyst Paul Dales stated there was a “decent chance” that UK interest rates could peak at 4.5 percent this month. UK inflation will likely slow in April after sharp increases in electricity and gas bills during the same month one year ago, he noted.

The government has forecast inflation will decelerate sharply to 2.9 percent by the end of the year. Dales added that the BoE’s accompanying policy statement could give it “wiggle room” to either pause the tightening cycle in June or raise rates further, depending on data.

The Bank of England has hiked rates 11 times since late 2021 in an unsuccessful bid to keep inflation close to its two percent target. The British central bank will also publish its latest quarterly outlook for economic growth and inflation on Thursday. That will include the impact of recent turmoil in the commercial banking sector, which saw the collapse of several US regional lenders and the UBS rescue of troubled giant Credit Suisse.

Official data due Friday, however, is expected to show the UK economy grew during the first quarter of this year after narrowly avoiding recession in the last three months of 2022.

BoE governor Andrew Bailey insisted last month that regulatory reforms introduced after the 2008 financial meltdown mean that the world does not now face a “systemic” banking crisis.