Insights 
VT 
Comments from the Bank of England Governor indicate that the recent rate decision was influenced more by domestic factors than tariffs. Inflation has not shown unexpected jumps, but the labour market has loosened slightly. Pay growth remains above levels aligned with a 2% inflation target, though it has slowed more than anticipated since February.
Despite the highest core inflation rate among major economies, predictions about the June rate decision remain unmade. The anticipation is that rates will stay steady, aligning with market expectations. However, the overall trajectory for interest rates is oriented downwards, yet the specifics of this decline are clouded by uncertainty due to international factors.
Global Trade Impact
Fragmented global trade negatively impacts global growth and delays investment decisions by UK businesses. While the impact on prices is mixed, the previous supply chain and inflation disruptions seen in 2021 are not currently being experienced. The Governor was undecided prior to the May policy decision, suggesting careful consideration of multiple unsteady factors affecting the economy.
What we’ve seen so far points to a UK monetary stance that, while still holding firm, has begun to lean towards eventual easing — but that path is anything but direct. Bailey made it clear that the Committee didn’t simply react to global conditions like tariffs, but rather took stock of nuances within the domestic economy. Labour slack has begun to settle in, and earnings aren’t running as hot as they had been earlier this year, which suggests some softening in household demand.
Still, wage increases remain elevated above comfort levels for a stable inflation outlook. The fact that they’ve moderated yet stayed above that 2% guidance tells us the disinflationary pressure isn’t quite strong enough to compel a rapid policy shift. It’s not about whether the job market is firm or faltering, but that the pace of moderation hasn’t been enough to tip the balance decisively. From our angle, this doesn’t support an abrupt move on rates.
There’s a peculiar disconnect now. Core inflation figures remain high compared with peers internationally, and yet the very mechanism that keeps these prices sticky — domestic pay growth — is waning. That mismatch adds noise to any forward-looking models about policy easing. In practical terms, any calls for a cut in June look premature. Markets have priced in patience, and that’s unlikely to be challenged unless something changes materially.
Global Demand Backdrop
One issue that keeps magnifying uncertainty is the global demand backdrop. Fragmentation in international trade flows — whether through policy divergences or geopolitical barriers — has erased some tailwinds for UK exports. That disrupts investment planning, especially for firms reliant on cross-border integration. We’ve seen a clear hesitancy among corporates to commit capital, and that drags on productivity measures.
However, even with slower business spending, we aren’t facing the kind of price spikes that battered supply chains just a few years ago. That helps maintain a degree of calm in input cost projections. Because of that, major inflation pressure now stems more from services and wage effects than logistics or commodity bottlenecks.
Given the Governor’s near last-minute swing on the latest vote, what stands out most is the delicacy of their deliberation. It wasn’t a mechanical pause — it was measured, driven by evidence that’s broadly softening, but not fast enough. For us, this implies any sudden shifts in options positioning or rate-path projections remain unjustified until the data shifts more definitively.
In the near term, therefore, we expect the risk profile to remain well-contained, barring unexpectedly hawkish wage or inflation data. Global uncertainties remain a drag, but aren’t transmitting into the system in the way they once did. That suggests positioning strategies should account for interest rate stability at present, but remain agile as the global backdrop continues to throw curveballs.
