20 June 2025: The MPC holds rates steady at 4.25%

It feels like every day, there is a fresh reason to criticise how the Chancellor of the Exchequer is doing her job. She is a member of a Government that has a massive majority, which provides her with a mandate to “do things her way”, but in trying to lay the foundations for future growth and property, she is ignoring the “here and now.

Rachel Reeves has chosen to ignore the fact that the economy may be heading for a period of stagflation, which she appears incapable of doing anything about, other than blaming what has gone before.

She figuratively shrugs her shoulders at each disappointing data release, often commenting that she is working hard to make things better in the future. Her various new methods will only bear fruit towards the end of this Parliament and throughout the next.

The targeting of inflation is left in the hands of the Bank of England, which chose to leave the base rate of interest unchanged at 4.25% following the latest meeting of the Monetary Policy Committee, which finished yesterday.

The electorate has every reason to be disappointed with the performance of Labour's first year in power in more than a decade. Of the Prime Minister’s five “missions for a better Britain”, the consensus has to be a fail.

The first goal was to achieve the highest sustained growth among the G7. Growth is tepid at best, even though it is being heralded as the fastest in the G7 currently. Verdict: cautious pass.

Next, make Britain a clean energy superpower. The energy secretary has become a figure of fun, facing protests over several of his net-zero policies. Verdict: fail.

Build an NHS fit for the future. Wes Streeting has become so bogged down in scandals and excessive wage demands that he has forgotten the part where any wage increases were to be part of efficiency and productivity increases. Verdict: fail.

Make Britain's streets safe. Witness Nottingham and Southport and the riots that threatened the country last summer. The police budget has been slashed by the Chancellor, and there is little doubt that the streets are less safe now. Verdict: fail.

Finally, to break down the barriers to opportunity at every stage. Education is still being stifled by creaking schools and universities that are still not providing the education that will be needed to drive the economy forward. Verdict: fail.

This does not provide anything other than a graphic illustration of the classic school report comment, must try harder.

Two further pledges are failing miserably too; first to smash the gangs bringing undocumented migrants across the English Channel, a situation which, by the Prime Minister’s own admission, is “deteriorating”. While the building of additional social housing has barely got off the ground as planning changes are being challenged at almost every turn, and there is a chronic shortage of skilled tradespeople.

Three members of the MPC voted for rates to be cut yesterday, although there was never a serious possibility of change. Like the ECB, the MPC is heavily focused on inflation, with growth mostly driven by fiscal changes.

Inflation remains stubbornly above 3% and well above the BoE’s target, with little change likely in the current circumstances.

Andrew Bailey wants interest rates to be cut gradually, but emphasised in his press conference that this should not be construed as a policy or a prediction.

The pound reached a high of 1.3439 in the wake of the Rate announcement, and continued to rally as the dollar lost ground following Trump’s dovish comments about intervention.

True to form, President Trump found time in his busy schedule to berate Jerome Powell and the rest of the FOMC for leaving rates unchanged following their latest meeting.

Trump finds himself more and more isolated in his demands for rate cuts, finding that only his most sycophantic supporters are blindly following his lead.

JPMorgan Chase CEO Jamie Dimon has issued yet another ominous warning for the US economy.

Dimon, considered one of America's most influential Wall Street figures, has been sounding the alarm for months on the chances of a recession and a possible period of stagflation.

Now, the bank CEO has warned that recent upbeat economic news could be hiding a much more sinister state of affairs.

'You're going to see real numbers, and I think there's a chance real numbers will deteriorate soon,' Dimon told the Morgan Stanley US Financial Conference in New York on Wednesday.

Dimon believes the full effects of Trump's aggressive tariff policies have yet to be felt in the larger economy.

He warned that a recent jobs report that showed hiring had slowed less than expected and an inflation report that showed price increases cooling do not mean the economy is not headed for a downturn.

'You haven't seen an effect yet other than in the sentiment,' Dimon said.

'And maybe in July, August, September, October, you'll start to see, did it have an effect? My guess is it did, hopefully not dramatically.'

Consumer sentiment and the stock market have rebounded since the initial shock of Trump's April 2 'Liberation Day' tariffs.

However, Dimon warned not to put too much stock in such measures, as neither 'consumer sentiment nor businesses' determines the key 'inflexion points' of an economic downturn.

What matters is hard economic data such as job and inflation reports, he said. Employment will come down a little bit. Inflation will go up a little bit. 'Hopefully, it's just a little bit,' he added.

The latest inflation report revealed that prices rose less than expected last month.

Prices rose 2.4% in May compared to the same time last year.

Although it is a slight increase on the month before, when prices rose 2.3% year-on-year, the increase of 0.1% suggests inflation is slowing, as it is a smaller jump than previous months.

Trump has demanded that the FOMC cut rates by 2.5% over the rest of the year, the equivalent of ten “standard” cuts!. Given Jerome Powell's statement on Wednesday evening, he may be lucky to see a single cut.

The dollar lost a little ground as Trump’s warnings to Iran carried less threat than they had previously, leading to a strengthening of risk tolerance.

The Index fell from a high of 99.09 to close at 98.66.

Bundesbank President and ECB Governing Board member, Joachim Nagel, can envisage a situation where interest rates are cut further, given the fact that, likely, inflation will significantly fall below the Central Bank’s 2% target.

ECB President Christine Lagarde signalled a pause in rate cuts to allow the economy to “catch up” with changes to monetary policy during her speech last week.

Nagel went on to say that we're now in the neutral territory of monetary policy. And we'll do what is necessary. While you will find sentences in our last monetary policy statements about what we think about fragmentation.

We have hope that we can convince Washington of what is right or wrong when it comes to tariffs. In the absence of a good compromise with Washington over tariffs, US citizens would pay the higher price, not Europeans.

Nagel did not mention the possible effect on the Eurozone economy of the imposition of tariffs, which could severely drive growth down.

Changing topic, Nagel went on to say that creating a European Union savings union has become a matter of urgency, adding that a closer banking union could follow after that.

European policymakers are seeking to foster deeper and more integrated capital markets across the often fragmented 27-member bloc.

As part of that, they are pursuing a "savings and investments union" to try to encourage retail investors to fund the investments in energy, defence and technology European needs to bridge the productivity gap with the United States and China.

Europe has fallen behind the other major global economic powers, posing a threat to its citizens’ living standards.

Given growing competition among economic blocs and tense relations with the United States, where a large portion of European savings has typically been invested, Nagel said there was no time to lose.

"I think the first step is to establish the savings and investment union, to do much more here. I think this is now of utmost importance," Nagel told a student conference in Milan.

"And then in the next step, we can do the banking union," he said.

ECB Vice President Luis de Guindos has had a busy week jetting around the region and making speeches about various topics concerning the Eurozone economy.

Yesterday, he was in Cyprus, where he made more general comments about the difficult issue of tariffs.

Tariffs will weigh on Eurozone economic growth and prices for years, he commented, but there is little risk of inflation falling too low, and even the euro's surge against the dollar is not a major worry.

The ECB signalled a pause in policy easing this month as projections showed price growth dipping below its 2% target temporarily on the strong euro and low oil prices, reviving worries that the ultra-low inflation environment of the pre-pandemic decade could return.

"The risk of undershooting is very limited in my view," de Guindos told Reuters in an interview. "We assess that risks for inflation are balanced."

A key reason why inflation will rebound to target after dipping to 1.4% in the first quarter of 2026 is that the labour market remains tight and unions will keep demanding healthy increases, keeping compensation growth at 3%, de Guindos argued.

While de Guindos did not explicitly argue for a pause in policy easing, he said that financial investors, who now bet on just one more interest rate cut, possibly towards the end of the year, had correctly interpreted ECB President Christine Lagarde's message.

The euro drifted on waves created by the dollar as it reacted to changes in risk sentiment. The single currency was driven lower, reaching 1.1450 before it rallied to close at 1.1499.

Have a great day!