Treasury Market Commentary –

Analysts expect UK base rate to hit 5.75% by 2024

A weekly economic update from our Treasury team.

Published

4th August 2023

Category

Macro Commentary

The Bank of England raised interest rates by 0.25%, with the market forecasting further hikes in September and November, to take the Bank rate to 5.75% by year end. The vote was split three ways, with the focus very much on the outlook for inflation and jobs.

The economic data remains challenging, with Nationwide reporting house prices fell by 3.8%, the sharpest drop in 14 years, whilst food price inflation has slowed to its lowest level this year.

In the US, the central bank has now likely reached the interest rate peak in this historic tightening cycle, with the upper band target rate now at 5.50%, and markets forecasting interest rate cuts in the first half of next year. Fitch downgraded the US credit rating from AAA to AA+, though we saw a relatively muted reaction in the market.

The European Central Bank may also have reached its peak interest rate following their recent hike, with the key deposit rate now standing at 3.75%. The committee, however, remains hawkish and a further hike later this year is still a real possibility.

On the exchanges, dollar strength continues to drive momentum, with GBP/USD dropping from 1.3000 down to 1.2700, whilst GBP/EUR remains very much within the established range of 1.1500 – 1.1750.

Today’s focus is very much on the US jobs report at 1.30pm, whilst next week’s key highlights are US inflation figures and UK growth data, which may drive short-term market sentiment.

GBP/USD – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

10/8/23

UK RICS House Price Balance

-46%

n/a

10/8/23

US CPI YoY

3.0%

3.2%

11/8/23

UK GDP QoQ

0.1%

n/a

11/8/23

UK GDP YoY

0.2%

n/a

11/8/23

UK Industrial Prod. YoY

-2.3%

n/a

11/8/23

UK Manufacturing Prod. YoY

-1.2%

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2705

USD/JPY

142.70

GBP/EUR

1.1610

AUD/USD

0.6565

EUR/USD

1.0950

USD/CHF

0.8760

GBP/AED

4.6700

XAU/USD

1932

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7529

+1.04%

S&P

4501

+17.25%

EUROSTOXX

4304

+13.47%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

3.75%

UK Benchmark Rates

Swap Mid (SONIA

 

2-year

+5.57%

5-year

+4.87%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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