Must read: Federal Reserve cuts rates, Bank of England

GLOBAL MARKETS 

European markets have opened higher with the DAX up around 1%, while the FTSE 100 is just above the flatline. Next (LSE:NXT) is the biggest loser on the UK blue-chip index after it expressed caution about the second half, dragging other UK retailers down with it. Elsewhere in the UK, M&C Saatchi (LSE:SAA) is also under pressure after it warned of weaker sales.  

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Overnight the Nikkei hit a record high after the Federal Reserve cut interest rates by a quarter point for the first time this year. The Nasdaq and the S&P 500 closed lower, while the Dow ended the session higher with US futures pointing to a positive day ahead. Fed chair Jay Powell said, “the case for there being a persistent inflation outbreak is less” but added that the rate decision was a “risk management cut”.

There was a slight increase in rate cut projections this year from the Fed’s dot plot, which now suggests there could be three cuts in total by the end of the year.

BANK OF ENGLAND PREVIEW 

The Bank of England is expected to keep rates unchanged at 4% during its policy decision meeting today, particularly in light of yesterday’s inflation data, which matched analysts’ expectations. Nonetheless inflation is running much hotter than the central bank would like and is expected to push higher in September before pulling back.

Elevated inflation makes it harder for the central bank to continue on its monetary loosening path, raising the likelihood of a higher-for-longer interest rate environment which could have negative effects on borrowing and the housing market.

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At its previous decision meeting, the Monetary Policy Committee (MPC) cut interest rates by 25 basis points to 4%, in a very narrow vote that divided the Bank’s rate setters. This time, the committee is expected to be much more united in its decision with a wider vote split in favour of a hold. 

December could be the next live rate decision, once monetary policymakers have greater clarity on the fiscal outlook in terms of the government’s tax and spending plans, which will be revealed in late November’s Autumn Budget.

Since today’s hold is widely anticipated, greater focus on lunchtime’s announcement will be on the Bank of England’s quantitative tightening. In light of recent bond market volatility, the central bank is expected to slow the pace at which it sells its government bond holdings.