FTSE Closes at 10,690; Softer UK Inflation Print Lifts August Bank Rate Cut Probability Above 40%
UK and European markets traded close to flat Wednesday after better-than-hoped UK inflation data. The FTSE 100 closed at 10,690, up 0.05% on Tuesday’s close. Brent crude eased to $87.60 a barrel, extending the three-month low. UK 10-year gilt yields slipped to 4.80%, a fresh four-and-a-half-month low. The softer May inflation print pushes the August Bank Rate cut probability above 40%, per Bank of America commentary. The Bank of England MPC decision is tomorrow morning; the Federal Reserve decision is later this week with rates expected on hold.
The softer May UK inflation print is the principal new data of the day; combined with Brent crude at three-month low, it materially eases the BoE’s decision-tree for August. The Bank of England MPC decision tomorrow morning is the binding macro variable: even with a Bank Rate hold, the language around future cuts will define the gilt-market trajectory through Q3. Chancellor Rachel Reeves’ fiscal-headroom position is materially eased through the leadership-transition uncertainty. The Burnham-Reeves continuity signal continues to ease the gilt-market positioning. The Brent $88-95 band that delivers a flat Ofgem October price-cap reset is now below the lower bound.