UK interest rates expected to remain on hold; rate cuts in Norway, Switzerland and the Philippines – business live | Business
Introduction: Bank of England expected to leave interest rates on hold today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
These are challenging times for central bankers. After steering through the Covid-19 pandemic, and then the energy shock after the Russia-Ukraine war, they must now set monetary policy in the face of an unpredictable trade war, and conflict in the Middle East.
Faced with such uncertainty, the Bank of England is expected to sit on its hands today when it sets UK interest rates.
According to the money markets, there’s a 96% chance that the BoE leaves rates on hold at 4.25% at noon today, and only a 4% possibility of a quarter-point cut (which would bring Bank Rate down to 4%).
Although UK inflation fell last month, to 3.4%, it remains stubbornly above the BoE’s 2% target – and could push higher if the Israel-Iran conflict drives the oil price higher.
Zara Nokes, global market analyst at J.P. Morgan Asset Management (JPMAM), says UK inflation is still “uncomfortably high”, explaining:
Escalating tensions in the Middle East, and the upward pressure this is putting on oil prices, will only add to the Bank of England’s concern about easing rates too quickly.
The Monetary Policy Committee will face a tougher choice when meeting again in August, given the combination of still-sticky inflation and evidence that the labour market is quite clearly cooling. A deterioration in the labour market should, in theory, put downward pressure on inflation, but until there are clear signs of this in the hard data, the Bank should be careful not to claim victory over inflation quite yet, not least because of the uncertain geopolitical climate.”
The Bank has cut rates four times in the last year, having lifted borrowing costs through 2022 and 2023 as it battled inflation. The money markets currently predict it will manage two more quarter-point cuts by the end of 2025.
Last night, America’s central bank left US interest rates on hold, but also lowered its forecasts for economic growth.
Federal Reserve chair Jerome Powell warned that the tariffs imposed by Donald Trump on imports would add to inflationary pressures, saying:
“Increases in tariffs this year are likely to push up prices and weigh on economic activity.
The effects on inflation could be short-lived, reflecting a one-time shift in the price level. It’s also possible that the inflationary effects could be more persistent.”
The UK’s new trade deal with the US should mean Britain is less affected by the global trade war, but as an open economy it would still feel the knock-on impact of trade disruption.
That could mean higher prices, meaning less pressure to cut rate, or lower growth, requiring lower borrowing costs to stimulate
The agenda
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8.30am BST: Swiss National Bank interest rate decision
-
9am BST: Norges Bank interest rate decision
-
Noon BST: Bank of England interest rate decision
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Noon BST: Bank of Turkey interest rate decision
Key events
Britain’s tax gap – a measure which estimates how much tax owed was not paid – has widened.
New data from HMRC shows that the UK missed out on £46.8bn of tax liabilities in the 2023-2024 financial year, or 5.3% of the total theoretical tax liabilities.
That’s slightly more than in 2022-23, when the tax gap is estimated to have been £46.4bn – from a slightly wider tax gap of 5.6% of total theoretical tax liabilities.
The data is calculated from estimates of how much excise duty, income tax, national insurance, capital gains, corporation tax and other levies were dodged.
Caitlin Boswell, Head of Advocacy and Policy at Tax Justice UK says HMRC needs more resources to tackle tax evasion:
“The real story here is that the UK’s tax authority doesn’t have the resources or backing it needs to tackle the tax gap which is likely far larger than what is published.
Evidence suggests that the level of tax non-compliance among the super-rich is far higher than estimated, with eye-watering sums of hoarded wealth being held offshore and out of sight of HMRC. Collecting the right tax, to invest in better healthcare, education and social security requires reliable investment and political backing in HMRC.
Instead, the department has to battle fluctuations in staffing resources, has disbanded its unit dedicated to collecting tax from ultra wealthy individuals and is expected to weather real-terms cuts to budgets in the coming years.”
The Norwegian currency has been knocked lower by today’s surprise interest rate cut.
The krone has dropped by 1% against the US dollar, to 10.06 krone to the $.
That underlines that investors had not expected Norges Bank to make its first post-pandemic rate cut today.
Premier Inn owner’s revenue drops in ‘challenging’ market
Lauren Almeida
Whitbread, the owner of hotel chain Premier Inn, has reported a drop in sales as the company struggles against a weak consumer environment and overhauls its restaurant business.
The group, which also owns food chains Beefeater and Brewers Fayre, reported a 5% drop in sales in the UK, led by a 16% drop in its food and beverage division. Its smaller business in Germany performed much better, with sales up 16%, but that was not enough to counter the decline in its home market, with overall sales across the group down 4%.
Richard Hunter, head of markets at the broker Interactive Investor, said while there was little for investors to cheer for in the update, it should be taken in the context of the company’s five-year plan. Last year Whitbread said it would convert 112 of its food and drink sites into hotels, sell 126 unprofitable restaurants, and cut 1,500 jobs.
Hunter said:
“The shares have struggled against the backdrop of a tough consumer environment, especially in the UK, and have fallen by 5.5% over the last year, during which time the wider FTSE100 has seen a 7.8% gain. The group is nonetheless generally well regarded for its prospects and, if achieved, the strategic plan would mark a successful step-change.”
The company told investors on Thursday its property disposals are on track to deliver proceeds of £250m to £300m.
While sales fell in the first quarter, the company emphasised that Premier Inn UK was outperforming its “midscale and economy” corner of the hospitality market. Still, Whitbread shares were down by as much as 2.7% in early trading.
Norway cuts rates too
Newsflash: We have a third interest rate cut this morning!
Norway’s central bank has surprised analysts by cutting its policy rate by a quarter of one percentage point, to 4.25%. The rate had been set at 4.5% since December 2023.
The Norges Bank says today’s decision was unanimous, following a slowdown in price rises.
Governor Ida Wolden Baches explains:
“Inflation has declined since the monetary policy meeting in March, and the inflation outlook for the coming year indicates lower inflation than previously expected.
A cautious normalisation of the policy rate will pave the way for inflation to return to target without restricting the economy more than necessary.”
Norges Bank also warns that there is more uncertainty about the economic outlook than usual – citing the risk of trade conflict.
Governor Ida Wolden Bache says:
“The uncertainty surrounding the economic outlook is now greater than normal. If the economy takes a different path than currently envisaged, the policy rate path may be adjusted. But our objectives stand firm. We will finish the job and ensure that inflation is brought all the way back to 2 percent.”
Philippines cuts interest rates, warns Middle East conflict could hurt growth
There’s also an interest rate cut in the Philippines today, although the decision wasn’t exactly a thriller in Manila.
Bangko Sentral ng Pilipinas has decided to cut its target reverse repurchase (RRP) Rate by 25 basis points to 5.25%, in line with market expectations.
It took the decision “as the outlook for inflation moderated”.
The BSP also warned that the Middle East conflict, and trade war concerns, could both hurt growth.
It says:
The Monetary Board also noted indications of a deceleration in global economic activity, driven primarily by uncertainty over US trade policy and the conflict in the Middle East. This would lead to slower growth in the Philippines.
A rise in oil prices, electricity rate adjustments, and higher rice tariffs, would add to inflationary pressures.
Switzerland cuts rates to zero
Newsflash: Switzerland’s central bank has lowered interest rates, and warned that trade tensions are hurting growth across the world economy.
The Swiss National Bank has lowered its policy rate to 0%, from 0.25%, declared that inflationary pressure has decreased compared to the previous quarter, and lowered its short-term inflation forecast.
The SNB also predicts that growth in the global economy will weaken over the coming quarters, saying:
The global economy continued to grow at a moderate pace in the first quarter of 2025. The global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions.
In its baseline scenario, the SNB anticipates that growth in the global economy will weaken over the coming quarters. Inflation in the US is likely to rise over the coming quarters. In Europe, by contrast, a further decrease in inflationary pressure is to be expected.
Recruiter Hays hit by slowdown in hiring demand
The health of the UK labour market is a key factor which the Bank of England considers when setting interest rates.
So, they may be concerned that recruitment firm Hays has issued a profits warning this morning, after suffering from weaker demand for hiring.
Hays told shareholders that activity levels during the last three months had fallen, primarily due to weakness in the global market for permanent staff. It blames this on “low levels of client and candidate confidence as a result of macroeconomic uncertainty”.
Hays added that the permanent jobs market has also weakened in the UK and Ireland, where it expects its income from recruitment fees to fall by 13%.
The company now expects to make an operating profit of £45m this financial year, below City forecasts of £56.4m.
Shares in Hays have tumbled 14% in early trading.
European markets fall
Europe’s main stock markets have dropped at the start of trading.
In London, the FTSE 100 index has lost 33 points, or 0.37%, to 8810 points. Mining stocks are among the fallers.
Oil company shares are rallying, with BP (+1.5%) and Shell (+1.3%) both lifted by the rise in crude oil prices today.
Germany’s DAX, France’s CAC, Spain’s IBEX and Italy’s FTSE MIB are all down around 0.5%
Oil is now up 1% today, following the news that Israel has attacked Iran’s Arak heavy water reactor.
Brent crude has now risen to $77.46 per barrel.
Shell CEO: We’re being ‘very careful’ with shipping in the Middle East
The boss of Shell has revealed the oil giant is being “very careful” with its shipping through the Middle East given the escalating conflict between Israel and Iran.
Wael Sawan told an industry conference that:
“The escalation in tensions over the last few days, in essence, has added to what has already been significant uncertainty in the region.
“We’re being very careful with, for example, our shipping in the region, just to make sure that we do not take any unnecessary risks.”
Sawan also warned that trade would be significantly disupted if the Strait of Hormuz – between the Persian Gulf and the Gulf of Oman – were to be closed, saying:
“The Strait of Hormuz is, at the end of the day, the artery through which the world’s energy flows, and if that artery is blocked, for whatever reason, it’ll have a huge impact on global trade.”
Earlier this week two oil tankers collided and caught fire. near the Strait of Hormuz, which has been blamed on a navigational misjudgement.
The oil price has nudged higher this morning, as the Israel-Iran conflict enters its seventh day.
Traders may be uncertain how the clashes will play out, after Donald Trump said he has not decided whether or not to take his country into the war, after he demanded Iran’s ‘unconditional surrender’ yesterday.
The president has suggested to defence officials it would make sense for the US to launch strikes against Iran only if the so-called “bunker buster” bomb was guaranteed to destroy a critical uranium enrichment facility, according to people familiar with the deliberations:
Brent crude is up 0.2% this morning at $76.86 per barrel. That’s more than 10% higher than at the start of last week, although below the initial spike last Friday when the attacks began.
Will Bank policymakers split again?
The Bank of England’s policymakers may not be united today over how to proceed.
Last month, the BoE’s interest rate-setting committee split three ways, with two members opposing a cut to rates and two more pushing for a larger cut than was actually agreed by the majority.
BNP Paribas predicts the Bank will split 7-2, with the dovish Swati Dhingra and Alan Taylor in a minority voting for another cut.
They told clients:
Elevated trade uncertainty, limited clarity on the passthrough of domestic fiscal policy, and market pricing for a rate hold all point to a decision to keep rates on hold in June, in our view.
However, it is the divergence in domestic data in particular that will keep the MPC glued to its quarterly pace of easing for at least another meeting, we think.
Introduction: Bank of England expected to leave interest rates on hold today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
These are challenging times for central bankers. After steering through the Covid-19 pandemic, and then the energy shock after the Russia-Ukraine war, they must now set monetary policy in the face of an unpredictable trade war, and conflict in the Middle East.
Faced with such uncertainty, the Bank of England is expected to sit on its hands today when it sets UK interest rates.
According to the money markets, there’s a 96% chance that the BoE leaves rates on hold at 4.25% at noon today, and only a 4% possibility of a quarter-point cut (which would bring Bank Rate down to 4%).
Although UK inflation fell last month, to 3.4%, it remains stubbornly above the BoE’s 2% target – and could push higher if the Israel-Iran conflict drives the oil price higher.
Zara Nokes, global market analyst at J.P. Morgan Asset Management (JPMAM), says UK inflation is still “uncomfortably high”, explaining:
Escalating tensions in the Middle East, and the upward pressure this is putting on oil prices, will only add to the Bank of England’s concern about easing rates too quickly.
The Monetary Policy Committee will face a tougher choice when meeting again in August, given the combination of still-sticky inflation and evidence that the labour market is quite clearly cooling. A deterioration in the labour market should, in theory, put downward pressure on inflation, but until there are clear signs of this in the hard data, the Bank should be careful not to claim victory over inflation quite yet, not least because of the uncertain geopolitical climate.”
The Bank has cut rates four times in the last year, having lifted borrowing costs through 2022 and 2023 as it battled inflation. The money markets currently predict it will manage two more quarter-point cuts by the end of 2025.
Last night, America’s central bank left US interest rates on hold, but also lowered its forecasts for economic growth.
Federal Reserve chair Jerome Powell warned that the tariffs imposed by Donald Trump on imports would add to inflationary pressures, saying:
“Increases in tariffs this year are likely to push up prices and weigh on economic activity.
The effects on inflation could be short-lived, reflecting a one-time shift in the price level. It’s also possible that the inflationary effects could be more persistent.”
The UK’s new trade deal with the US should mean Britain is less affected by the global trade war, but as an open economy it would still feel the knock-on impact of trade disruption.
That could mean higher prices, meaning less pressure to cut rate, or lower growth, requiring lower borrowing costs to stimulate
The agenda
-
8.30am BST: Swiss National Bank interest rate decision
-
9am BST: Norges Bank interest rate decision
-
Noon BST: Bank of England interest rate decision
-
Noon BST: Bank of Turkey interest rate decision
