Bank of England cuts rates as expected

The Bank of England (BoE) reduced its benchmark interest rate by 25 basis points to 4.75%, as anticipated by markets, following a pause in September and a similar quarter-point cut in August. The decision, made by an 8-1 vote in the Monetary Policy Committee (MPC), saw Catherine Mann dissent in favor of maintaining rates. The BoE emphasized a "gradual approach" to easing policy while maintaining restrictive measures until inflation risks fall more sustainably toward the 2% target.

The BoE’s updated economic projections reflect a shift in inflation expectations, with the central bank raising its Q4 2025 inflation forecast from 2.2% to 2.7% and projecting a Q4 2026 rise from 1.6% to 2.2%. Over the longer term, inflation is expected to slow to 1.8% by Q4 2027, suggesting a more measured trajectory towards the BoE’s 2% goal. Adjustments were also made to GDP growth forecasts, with the Q4 2025 estimate revised up to 1.7% from 0.9%, though growth is expected to moderate to 1.1% in Q4 2026, rebounding to 1.4% by Q4 2027.

Fed prepares for 25 bps Cut

Across the Atlantic, the Federal Reserve is set to announce a 25 basis point reduction, which would bring the federal funds rate to a range of 4.50%-4.75%. Markets will be watching closely for Fed Chair Jerome Powell’s comments on inflation, as traders seek clarity on potential responses to inflationary pressures tied to President Donald Trump’s re-election and possible fiscal policy shifts.

Powell is expected to avoid direct commentary on Trump’s election win but may signal the Fed’s stance on price stability in light of anticipated increases in fiscal spending. With Trump’s policies likely to stimulate demand, potentially pushing inflation higher, Powell’s tone could set the stage for future Fed actions. Futures markets currently price in a 67% chance of an additional 25 basis point cut in December, down slightly from 70% pre-election. Projections for 2025 indicate a more cautious approach, with the Fed potentially limiting rate cuts to two in the first half, reaching a target range of 3.75%-4.00% by mid-year, followed by a pause for reassessment.

US jobless claims rise slightly above forecasts

The U.S. labor market showed slight softening as initial jobless claims edged up by 3,000 to 221,000 for the week ending November 2, marginally above forecasts of 220,000. Meanwhile, the four-week moving average for continuing claims dropped by 10,000 to 227,000, indicating some stability in ongoing unemployment claims despite the minor uptick in new filings.