‍United Kingdom: Labour Market Cooling and Monetary Policy Outlook

‍

Slowing Wage Growth and Rising Unemployment: UK wage growth decelerated to 5.6% in the three months to March, the lowest since November 2024, falling short of analyst expectations. Concurrently, the unemployment rate edged up to 4.5%, with a notable decline in job vacancies. These indicators suggest a cooling labour market, potentially easing inflationary pressures.
‍

‍

Bank of England's Cautious Stance: While the Bank of England recently reduced the base rate to 4.25%, further cuts remain uncertain. Chief Economist Huw Pill expressed concerns about persistent inflation, indicating that interest rates might need to stay elevated longer than previously anticipated. Market projections foresee a total rate cut of up to 48.6 basis points by year-end, with no imminent change expected in June.

‍

Sterling's Performance: The British pound recovered some ground against the U.S. dollar, trading at $1.32115 on May 13, after hitting a four-week low the previous day. This rebound was influenced by positive developments in global trade relations, including the temporary reduction of tariffs between the U.S. and China.

‍

United States: Inflation Trends and Trade Developments

‍

Unexpected Decline in Inflation: U.S. inflation unexpectedly fell to 2.3% in April, marking the lowest rate since February 2021. This decline was primarily driven by decreases in fuel and food prices. Core inflation remained steady at 2.8% year-on-year. The easing inflation has led to a reduction in market expectations for Federal Reserve rate cuts, now anticipating 56 basis points of easing for the year.

‍

Temporary Tariff Reductions: In a bid to ease trade tensions, the U.S. and China agreed to temporarily reduce reciprocal tariffs. The U.S. lowered tariffs on Chinese goods from as high as 145% to 30%, while China reduced tariffs on American exports from 125% to 10%. Additionally, a separate deal with the UK reduced tariffs on automobile and metal exports. These developments have improved market sentiment and contributed to a slight weakening of the U.S. dollar.

‍