Market Update

Seven members of the Monetary Policy Committee (MPC) voted to maintain interest rates, while two advocated for a cut to 5%. Those favoring a hold emphasized the delicate balance of their decision. The MPC's discussions revealed a subtle shift in tone, hinting at the possibility of policy easing in the near future.
The Committee stated that the timing of the general election on July 4 was not a factor in their decision, reiterating their commitment to setting policy solely to achieve the 2% inflation target sustainably.
Bank of England (BoE) Governor Andrew Bailey expressed concern over stubbornly high inflation in the services sector, where prices rose by 5.7% year-over-year in May. He highlighted the need for a cautious approach, despite inflation moderating toward the 2% target. The Committee noted that “short-term inflation expectations have continued to moderate, particularly for households.” However, they anticipate a slight rise in CPI inflation in the second half of the year due to last year’s energy price declines fading from annual comparisons. Bailey stressed the importance of sustained low inflation before any rate cuts are considered. Financial markets have raised expectations for an August rate cut, although many believe a September adjustment is more likely.
UK Economic Highlights
The FTSE 100 closed the week higher, supported by a strong recovery in retail sales. UK retail sales surged 2.9% month-over-month in May 2024, bouncing back from an upwardly revised 1.8% decline in April and surpassing expectations of a 1.5% gain. This marked the largest increase in four months, with sectors like clothing and furniture seeing significant rebounds after April’s poor weather.
The UK Composite PMI fell to 51.7 in June, down from 53.0 in May and below market forecasts. The decline was driven by a slowdown in the services sector, as businesses delayed spending decisions ahead of the election. However, manufacturing conditions provided a bright spot, hitting a 23-month high. The broader economic slowdown may pressure policymakers to consider interest rate cuts.
Eurozone and US Updates
In the Eurozone, stocks ended the week higher as concerns over political uncertainty eased and optimism about monetary policy loosening grew. The Eurozone PMI fell to 50.8 in June, down from 52.2 in May and missing market expectations. Despite the slowdown, this marked the fourth consecutive month of private-sector expansion, driven by services growth that offset a deeper manufacturing contraction, which hit a six-month low.
In the US, PMI data climbed to 54.6 in June, its highest level in over two years, showcasing strength in the services sector. Payroll growth in this sector hit a five-month high after a two-month dip. Selling price pressures in services were among the lowest since the pandemic began, offering some relief. However, higher wage bills continued to squeeze operating margins, indicating lingering cost pressures.