The Bank of England's monetary policy committee is expected to leave rates on hold today, despite a mixed economic landscape. The FTSE 100 has been called 40 points lower on the futures market, a day after battling to a 14.4-point gain at 10,508.61 by the close. The index is being dragged lower by weakness across its heavyweight mining and oil sectors, while rate-sensitive stocks are all under pressure. The US and Iran signing a ceasefire deal last night has helped lower oil prices, but a portentous debut of the US Federal Reserve's new chair seems still likely to weigh on markets today. The Fed's hawkish policy announcement on inflation concerns sent the US 2-year yield to the highest levels in almost one-and-a-half years, and the spread between the US 2- and 10-year yields fell to the lowest levels in a year, indicating a potential recession. The Bank of England's decision to hold rates comes as a balanced view of easing inflation and lingering uncertainty over the economic impact of the Iran war. The MPC noted inflation had fallen to 2.8%, and labour market conditions continued to loosen, although it warned that higher energy prices could still feed through into wages and broader inflation if they persist. Officials also highlighted that borrowing costs for households and businesses have already risen sharply since the outbreak of the conflict, helping to tighten financial conditions without further action from the MPC. The MPC is ready to act if evidence emerges that higher energy costs are becoming embedded in domestic price and wage-setting, but for now, holding rates is the appropriate course. The Bank of England's governor, Andrew Bailey, sees the economic situation as unpredictable, with a risk that energy prices remain elevated for an extended duration. He stresses the importance of tolerating temporarily above-target inflation as part of a return to target, provided inflation expectations remain contained. The MPC's guidance is little changed despite the signing of the Iran ceasefire extension, with potential MPC members content to hold rates and wait for any evidence of second-round effects rather than acting pre-emptively. The Bank of England's decision to hold rates is a cautious approach, given the current economic uncertainty and the potential for higher inflation. The MPC is likely to remain vigilant and act as necessary if the economic outlook worsens.
