Treasury Market Commentary –

UK rates now expected to peak at 5.50%

A weekly economic update from our Treasury team.

Published

15th September 2023

Category

Macro Commentary

The market is pricing in a 70% probability of the Bank of England increasing rates by a further 0.25% at next week’s meeting, in what is likely to be a split decision. Most forecasters now expect UK rates to peak at 5.50% and stay at that level well into 2024, with much of the tightening over the past year yet to fully hit borrowers.

A mixed UK jobs report showed unemployment rose to 4.3%, its highest level since 2021, whilst average earnings rose 7.8%, which crucially is higher than inflation. The latest inflation data, which is the key driver of monetary policy, is due next Wednesday, prior to the key rate decision on Thursday.

The US economy continues to outperform with strong retail sales figures this week, whilst headline inflation ticked up to 3.7%, keeping pressure on the Fed. We expect the central bank to hold rates steady at next week’s meeting, but a further hike in the months ahead remains in play.

In Europe, the central bank raised rates by 0.25% taking the deposit rate to a record high of 4%, which is likely the peak, with the committee cutting future growth forecasts.

On the exchanges, dollar strength continues to drive momentum, with GBP/USD trading at new 3-month lows towards 1.2400, whilst GBP/EUR remains very much within the well-established 1.1500 – 1.1750 range.

GBP/USD – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

19/9/23

EU CPI YoY

5.3%

n/a

20/9/23

UK CPI YoY

6.8%

n/a

20/9/23

UK RPI YoY

9.0%

n/a

20/9/23

US FOMC Rate Decision (Lower Bound)

5.25%

5.25%

21/9/23

UK Bank of England Bank Rate

5.25%

5.50%

22/9/23

UK Retail Sales YoY

-3.2%

n/a

22/9/23

UK S&P/CIPS Services PMI

49.5

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2425

USD/JPY

147.65

GBP/EUR

1.1655

AUD/USD

0.6465

EUR/USD

1.0660

USD/CHF

0.8955

GBP/AED

4.5650

XAU/USD

1907

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7673

+2.97%

S&P

4505

+17.81%

EUROSTOXX

4279

+12.81%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

4.00%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.25%

5-year

+4.57%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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