After yesterday’s election drama, monetary policy makes a welcome return to the stage with interest rate decisions in the UK and US.The Bank of England is widely expected to cut base rate today; from 5% to 4.75%.
With CPI inflation and wage growth both continuing to cool, the Bank should feel confident it can adjust its restrictive policy stance.
To make the decision, the BoE must weigh up the implications of last week’s UK budget, which lifted taxes, spending and borrowing.
But investors are confident that its monetary policy committee will vote to lower rates – a quarter-point cut is a 95% probability, according to the latest money market pricing.
Ranjiv Mann, senior fixed income portfolio manager at AllianzGI, says: "In the short term, although BOE governor Andrew Bailey indicated recently that it may be too early to declare victory on the fight against inflation given some concern about the stickiness of services inflation, we think that a majority of MPC members will still favour cutting rates in November."
The BoE will also be considering the outcome of the US election, and the implications of changes to US trade policy.As must the Federal Reserve! It is also expected to cut borrowing costs by a quarter-point, when the US cental bank’s policymakers meets today.
Donald Trump’s pro-growth policies, such as tax cuts and tariffs, are likely to lead to higher inflation in the US, which ought to leave less room for interest rate cuts.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says: "The Federal Reserve is expected to announce a 25bp cut today, but the policy beyond today’s decision must be readjusted accordingly.
"The expectation, so far, was that the Fed would cut today by 25bp, and deliver another 25bp cut in December, and a full point cut next year. Now, the December cut is on a slippery ground and the Fed should not consider more than 2-3 rate cuts next year. That’s – at least – the policy response that you would reasonably expect from a central bank as an economist."
The agenda • 8.30am GMT: Eurozone construction PMI report for October • Noon GMT: Bank of England interest rate decision • 12.30pm GMT: Bank of England press conference • 1.30pm GMT: US weekly jobless claims • 7pm GMT: Federal Reserve interest rate decision7.30pm GMT: Federal Reserve press conference
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Cost increases for shops and pubs are real and large. Pity the small operators 
