Bank of England and Norway Hold Rates, Swiss National Bank Cuts Rates Again

Bridgette Randall
20 Jun, 2024
Frankfurt

European markets advanced as investors reviewed the flood of monetary policy decisions. 

The Bank of England held its policy rate at 5.25%, as widely expected, and policymakers showed no urgency in lowering rates despite inflation declining to 2% in May. 

Policymakers, in a 7-to-2 vote, decided to leave rates at 5.25%, a 16-year high, and held rates for the seventh time in a row since August 2023. 

However, policymakers held out for inflation to rebound in the second half due to the lower base of energy prices last year. 

Despite the majority of policymakers voting for holding rates, most committee members struggled to decide between holding and cutting rates, according to the minutes of the meeting released by the Bank of England. 

"For some members within this group, the return of headline inflation to 2%, while welcome, was not necessarily indicative of the required sustained return to target," the Bank of England noted in a statement released after the policy meeting. 

"For other members within this group, the upside news in service price inflation relative to the May Report did not alter significantly the disinflationary trajectory that the economy was on," highlighted the BoE in the statement. 

The Swiss National Bank decided to lower its benchmark rate by 25 basis points to 1.25%, following a similar-sized cut in the previous meeting in March. 

The SNB held its annual inflation outlook at 1.3% in 2024 and 1.5% in 2025, and the central bank estimated the economy to expand at 1.0% in the current year and accelerate at 1.5% in 2025. 

Policymakers estimated growth "to remain moderate" in the following quarter, unemployment is expected "to rise slightly," and capacity utilization "is likely to decline slightly" as the manufacturing sector stagnates on weak global demand growth. 

The Norges Bank held its policy rate steady at 4.5%, and estimated rates are likely to stay at the current level for "some time ahead." 

Despite the rapid increase in interest rates, inflation is still above the central bank's long-term target rate, but economic growth has cooled. 

The policy committee worried that wage inflation is likely to pick up in the coming quarters, and a premature rate cut could fan inflationary forces. 

"The Committee judges that the policy rate is sufficiently high to bring inflation down to target within a reasonable time horizon, but that there will be a need to maintain a tight monetary policy stance for somewhat longer than previously projected," according to the statement released by the Norges Bank. 

“If the economy evolves as currently envisaged, the policy rate will continue to lie at 4.5 percent until the end of the year, before gradually being reduced,” says Governor Ida Wolden Bache. 

Economic growth is projected to pick up a little in the years ahead, but unemployment is likely to edge up. Inflation is projected to decline further and approach 2% towards the end of 2027.

 

Europe Indexes and Yields

The DAX index increased by 0.6% to 18,180.11; the CAC-40 index rose by 0.9% to 7,642.93; and the FTSE 100 index advanced by 0.4% to 8,238.69. 

The yield on 10-year German bonds edged lower to 2.42%. French bonds inched higher to 3.16%; the UK gilts edged lower to 4.07%; and Italian bonds increased to 3.93%.

The euro edged lower to $1.073; the British pound inched higher to $1.269; and the U.S. dollar weakened to 88.94 Swiss cents.

Brent crude decreased $0.14 to $85.19 a barrel, and the Dutch TTF natural gas fell by €0.30 to €35.03 per MWh.

 

Europe Stock Movers

Tate & Lyle declined 8.2% to 622.0 pence after the British food ingredient maker agreed to acquire nature-based ingredient provider CP Kelco for $1.8 billion. 

Danone SA declined 3.2% to €57.0 after the French food company said it is targeting comparable sales growth between 3% and 5% in the period between 2025 and 2028 and recurring operating income to grow faster than net sales. 

The company said its current growth plan is expected to support its long-term objective of free cash flow of €3 billion.