It remains impossible to talk about investments without discussing the outlook for inflation and interest rates. As we discussed in our Q1 update, interest rate expectations rolled back quite aggressively in the early part of the year, with the timing and pace of interest rate cuts one of the reasons for market volatility over the past three months.
Although economic data in different countries is likely to continue to be mixed, the path for inflation remains clearly down. UK inflation reached the Bank of England’s 2% target during this quarter, as anticipated. While there might be a modest increase in the second half of the year, there remains the potential that the BoE will reduce interest rates in August.
Whilst June inflation data showed inflation unchanged at 2%, service inflation was also unchanged at 5.7%, and remains a concern for the BoE. In hindsight it may prove that not cutting UK rates in June was a mistake, but that was very unlikely to happen due to the timing of the general election.
We believe UK rates may be cut four to five times between August and the end of 2025, taking the headline rate to 4%. The IMF is forecasting UK interest rates at 3.5% by that point
Read more about Aubrey’s MPS range here.
