US inflation edged higher last month but the market still expects the Federal Reserve to cut interest rates next week, a day before the Bank of England announces its next move.
First up is the European Central Bank today and the consensus is that it will ease its main interest rates by an additional 25 basis points, though some observers believe that a 50bp reduction would be more appropriate.
Headline CPI inflation in the US came in at an annual 2.7% for November, up from 2.6% in October. Core inflation (excluding foods and energy) was 3.3%.
Nathaniel Casey, investment strategist at wealth manager Evelyn Partners, said: “Although slightly warmer, this inflation print is unlikely to derail the Fed’s rate cutting cycle and we continue to expect the Fed to cut rates by 25 basis points at their final 2024 later this next month.
“However, we remain vigilant of any further deviations in the inflation trajectory, given the resilience of the US economy and the potentially expansive fiscal policy that could accompany the Trump Presidency in January.
Other analysts anticipate that the Fed will cut interest rates by a quarter of a percentage point next Wednesday, leaving rates at a range of 4.25 to 4.5%. Such a move would take the Fed’s 2024 tally of rate cuts to three.
The Bank of England is expected to keep UK borrowing costs unchanged at 4.75% when it announces its next rate decision next Thursday following inflationary pressures priced in to the Chancellor’s budget.
UK inflation figures for November are published next Wednesday and could see an uplift to 2.6% from 2.3% in the previous month.
Economists are warning that if Donald Trump proceeds with his promised tariffs it may force many firms to increase prices to maintain profit margins.
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