SNB President Schlegel on Rate Cut Decision, FX Market
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So today we decided to lower interest rates from 25 basis points by 25 basis points to zero. And the reason is that we observed lower inflation pressure in the last months and also quite low inflation. This led us to the decision to lower interest rates again. You said in March that further rate cuts are less likely now and still we see a rate cut today. Was was your hand today forced by how much the franc appreciated since the last interest rate decision. So we always come together as a board. We look at the data, we look at the models and we discuss. And given the lower inflation pressure that we observe in Switzerland, we came to the conclusion that this is the right decision to take today. But you didn't mention the franc in your answer now at all. Like, I think it's safe to say that the inflation pressures subsided because the franc went up. Right. There are some factors at work here. One is certainly the stronger Swiss franc, especially against the US dollar, but it's also tourism that is lower and it's also energy prices that is that were lower and put inflation to the downside to the downside at the Swiss National Bank. We'll look at more monetary conditions. Overall. This means interest rates in the one side, but also the exchange rate on the on the other side. And of course, given that the Swiss franc appreciated, this was certainly also a factor. Since you mentioned since you mentioned the oil price. So with the increase of the oil price from the newly enflamed way and the war in the Middle East, like there we see an increase in the oil price. So is that actually something which could relieve the Swiss inflation situation? Of course, if the oil price increases, this means that inflation also be they'll be a little bit higher. But of course, also the oil price also has an effect on on the economy. What we have seen so far, the increase in the oil price in the last days has only a very small effect on inflation. Back to the franc then. One tool that can be used in the past, the currency interventions to keep a lid on the franc. Did they are they still on the table now? Also with a US president, Donald Trump. The Swiss National Bank is ready to intervene in the FX market if necessary. I will repeat it is quite a lot in the last couple of months and this is still true. It's also important to say that we do not have an FX level in mind. We do not have an FX target. But the FX intervention interventions remain an important instrument that that we have. So Switzerland is not a currency manipulator. When we intervened in the FX market, it was to ensure appropriate monitor conditions to achieve our goal, which is price stability. However, during all of last year, all of 2024, you didn't intervene in a meaningful manner in that affects market at all. So are you scared of Trump? So we do monetary policy for Switzerland and there we have different instruments like the main instrument interest rates, but also FX interventions. And we use them and will also use them in the future to achieve our goal of price stability. You said today when we talk about the policy rate, you said today that you wouldn't go negative likely because of all those consequences that could have. However, if you don't want to go negative, then you basically have to intervene more in the exchange rate if the upward pressure on the franc stays. So doesn't that set you on a confrontation? Doesn't that set up a confrontation with Donald Trump? So, so far, uh, in the last one and a half years have lowered interest rates quite early and also decisively. And this means that at the moment the interest rate is expansionary. And this also has a positive effect, of course, on the on on inflation on the side. On the FX side, your right to intervene in the FX market that's necessary to achieve our goal, which is price stability. It is intentional that you're not mentioning the name of the US President I talk about Switzerland and the Swiss National Bank. I get it. All right, cool. Cool. So looking forward, like on July 9th, which is less than three weeks from today, the 90 day tariff reprieve, which Donald Trump has called for. And so that tariffs on Switzerland could ratchet up to 31% on that day. How much does that worry you for the Swiss economy? Of course, tariffs like this could have an impact on the Swiss economy, but it's it's very difficult to to see the exact amount because almost every enterprise is is is impacted differently. In Switzerland, uh, the Swiss National Bank is not in charge of negotiations. This is, of course, with the Confederation. And the Federal Council just ratified the mandate a few weeks ago. But still, you would have to react to the monetary conditions which politicians present you with. So do you think you might need to react very quickly after July 9th? We will see, uh, when this day comes. And do you think that you can reach your next scheduled decision in September without an unscheduled rate cut in between? How can you make a forecast in this? Sorry that I ask you for another forecasting question. How how likely do you think it is that you will go by the end of the year that you will have to go below zero? I will not do a forecast on this. We do monetary policy in every quarter at our at our assessments. There is a look at all the data and take a decision.
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Bank of England tracking ‘deeply worrying' conflict in Middle East
The escalating conflict in the Middle East is 'deeply worrying', a deputy governor of the Bank of England has warned after voting to keep interest rates on hold. Clare Lombardelli said the central bank is closely monitoring events in the region, which has sent oil prices surging. She told broadcasters: 'The events in the Middle East are tragic and they are deeply worrying. As you'd expect, we are monitoring carefully those events and the impact that those will have. 'We've seen oil prices, for example, increase since the attacks but we're thinking about and focused on the impacts for UK inflation. And so we're monitoring and carefully assessing those events.' The Bank of England warned that rising energy and food prices risk forcing a sustained squeeze on family finances as the war between Israel and Iran sent oil prices surging. Andrew Bailey, the Governor of the Bank, and the majority of his colleagues on the nine-strong Monetary Policy Committee (MPC) voted to hold interest rates steady at 4.25pc. Officials face slow growth and falling pay rises in the UK economy, but also the threat of higher price pressures from global markets. Inflation is expected to edge up further in the coming months, from 3.4pc in April to a peak of 3.7pc in September. That is firmly above the Bank's 2pc target and higher than the pace of price rises seen in the eurozone or the US. But officials hope it will drop back again in the coming years, allowing interest rate cuts in the months ahead. 'Interest rates remain on a gradual downward path, although we've left them on hold today,' said Mr Bailey. 'The world is highly unpredictable. In the UK we are seeing signs of softening in the labour market. We will be looking carefully at the extent to which those signs feed through to consumer price inflation.' The MPC noted that 'energy prices have risen owing to an escalation of the conflict in the Middle East' which has sent oil prices up by around one-quarter to $79 per barrel since the previous meeting in May, at which officials cut interest rates from 4.5pc to 4.25pc. They pledged to 'remain vigilant about these developments and their potential impact on the UK economy'. Officials also noted the 'progress in negotiating trade deals' to limit some of the impact of the tariffs announced by the US authorities in April. Some policymakers also fear the risk from rising food prices, citing sharp rises in the cost of beef, cocoa beans and coffee. This brings the possibility that households, already scarred by the cost of living crisis of 2022 and 2023, may see fresh increases in prices and so demand bigger pay packets - potentially in turn sparking further inflation. 'Inflation persistence could also be generated by higher good prices raising inflation expectations, impacting wage and price setting behaviours,' said the minutes of the MPC's meeting. Thanks for joining us today. That's all for this live blog. You can read our latest analysis and news on the economy and business here. Interest rates are expected to move 'gradually downward' after a weakening in the jobs market, one of the Bank of England's deputy governors has said. Clare Lombardelli said policymakers had decided to keep interest rates on hold at 4.25pc 'given the uncertainty facing the economy'. She told broadcasters: 'We expect interest rates to be on a gradually downward path in general. 'But of course, we need to be careful and think about all of the factors. Inflation is still too high and that is painful for people.' Traders have increased bets on a reduction in borrowing costs in August after the minutes from the Monetary Policy Committee meeting indicated officials think Britain's jobs market is weakening. Ms Lombardelli said: 'We are seeing some broad weakening in the labour market. 'I mean, this is in line with what we expected, and actually quite similar to what we set out in our latest Monetary Policy Report in May but it's important that we consider those changes.' However, she warned: 'Services inflation is proving to be quite sticky, but we've also seen recent rises in energy prices, other regulated prices, like transport, like phones and of course food prices have risen as well and all of that taken together is obviously difficult for people.' The escalating conflict in the Middle East is 'deeply worrying', a deputy governor of the Bank of England has warned after voting to keep interest rates on hold. Clare Lombardelli said the central bank is closely monitoring events in the region, which has sent oil prices surging. She told broadcasters: 'The events in the Middle East are tragic and they are deeply worrying. As you'd expect, we are monitoring carefully those events and the impact that those will have. 'We've seen oil prices, for example, increase since the attacks but we're thinking about and focused on the impacts for UK inflation. And so we're monitoring and carefully assessing those events.' Donald Trump accused chairman of the Federal Reserve of costing the US 'hundreds of billions of dollars' for leaving interest rates unchanged this week. The US president called Jerome Powell an 'American disgrace' after he announced on Wednesday that the central bank would hold its borrowing costs in the range of 4.25pc to 4.5pc. The Fed cut its growth outlook for the US economy as Mr Powell said keeping rates steady would allow policymakers to react to an expected spike in inflation form the President's tariff policies. Mr Trump wrote on his Truth Social platform: ''Too Late' Jerome Powell is costing our Country Hundreds of Billions of Dollars. 'He is truly one of the dumbest, and most destructive, people in Government, and the Fed Board is complicit. 'Europe has had 10 cuts, we have had none. We should be 2.5 Points lower, and save $BILLIONS on all of Biden's Short Term Debt. 'We have LOW inflation! TOO LATE's an American Disgrace!' It has been couple of days for central banks, with the Fed and the Bank of England holding rates but others opting to cut borrowing costs. Switzerland and Norway both cut interest rates today, the latter surprising markets with its first cut in five years. Sweden's Riksbank reduced its policy rate to 2pc on Wednesday. Here is how major central bank interest rates stack up: 'Monetary policy is not on a pre-set path.' So the Bank of England asserted when it cut rates by 0.25 percentage points last month, continuing a recent tradition of not saying very much. In the accompanying minutes, the Monetary Policy Committee confirmed that a 'gradual and careful approach' will be taken to the 'withdrawal of monetary policy restraint', but the Bank will also keep interest rates in 'restrictive territory'. This action will be maintained for a 'sufficiently long' period, during which time it predicts there could be a 'near-term increase' in inflation, or it could 'ease more quickly' than expected. The FTSE 100 was still trading lower after traders bet that the Bank of England is more likely to cut interest rates in August. The UK's flagship stock index was last down 0.2pc while the mid-cap FTSE 250 had declined 0.6pc. Money markets were last betting there was a 79pc of an August rate cut, up from 77pc on Wednesday but slightly weaker than the hour after the Bank's minutes were published. James Lynch, investment manager at Aegon Asset Management, said: 'The Bank of England is leaning slightly dovish and clearing the way for an August cut to 4pc, rather than signalling a deeper cutting cycle. 'The market consensus remains at two cuts for the rest of 2025, which seems a fair reflection of the information available.' The Bank of England has kept 'one eye on energy prices' as it opened the door to an August interest rate cut, an economist has said. Yael Selfin, chief economist at KPMG UK, said he expects policymakers to lower borrowing costs twice more to 3.75pc by the end of the year. But he warned: 'The Bank of England opted to keep interest rates unchanged as the backdrop of elevated domestic price pressures was enough to prevent a majority of the MPC voting for a cut. 'The recent rally in energy prices driven by an escalation in geopolitical tensions in the Middle East have also added a further upside risk to the inflation outlook.' A slowdown in the jobs market has nudged policymakers at the Bank of England to a 'dovish' stance, according to economists. The number of people in jobs slumped at the fastest rate since the pandemic in the wake of Rachel Reeves's tax raid, official figures showed earlier this month. Payrolled employees nosedived by 109,000 between April and May to 30.2m, the Office for National Statistics (ONS) said. It represented the biggest drop for five years, dwarfing a slump seen at the start of the pandemic. Rob Wood, chief UK economist at Pantheon Macroeconomics, said the MPC appeared to be 'attaching increasing weight to' data indicating the jobs market was weakening. The 'dovish' tilt – meaning policymakers are leaning towards future rate cuts – has led to an increase in bets on money markets for an August rate cut. However, Mr Wood warned the change in attitude may be short lived. He said: 'Admittedly, the weaker data in recent weeks appears to have nudged Committee members towards a more dovish stance, though it continues to think that the risks to inflation are 'two-sided'. 'We think the data that warranted the dovish tilt today will turn around, and inflation will remain too high, so we stick with our call for just one more 25bp reduction in November.' A private European bank is betting that traders have misplaced their optimism that the Bank of England will cut interest rates in August. Hamburg-based Berenberg said the Monetary Policy Committee (MPC) had shown 'hawkish caution' in its minutes, indicating it would leave borrowing costs unchanged again at its next meeting. Traders have increased bets on an August rate cut after three members of the MPC voted for a quarter point reduction in borrowing costs. Andrew Wishart, senior UK economist at Berenberg, said survey data had hinted that the recent weakening of the jobs market 'will not get any worse' once companies pass on increases in staff costs imposed in April by Budget tax rises. He said: 'As companies pass those costs on, inflation is likely to prove too stubborn for the Bank to cut again this year.' The Bank of England should have cut interest rates to 4pc to help boost Britain's economy weighed down by high borrowing costs, a think tank has said. Carsten Jung, associate director at the Institute for Public Policy Research (IPPR), said: 'The Bank should have continued its rate cutting cycle, by lowering rates by 0.25 today. 'This year's GDP growth has been lower than expected, in large part because interest rates are being kept high for long. Even when considering still elevated inflation, the Bank continues to run an overly restrictive policy, and it is harming ordinary households. 'But even as price increases are set to slow, many essential goods are still very costly. 'The Government should do more to reduce the cost of living for households right now. 'By rebalancing energy bills to lower electricity prices, helping people with energy debt and regulating the additional fees charged to consumers, the Government could provide prompt relief - and demonstrate that ministers are proactive in tackling the cost of living.' Traders have increased bets on an August interest rate cut after three of the nine MPC members voted to cut rates to 4pc. Those officials – Swati Dhingra, Alan Taylor and Deputy Governor Sir Dave Ramsden – cited falling pay growth, sluggish demand for workers and weak consumer spending as evidence that inflation will start to drop again in the coming years. The 0.3pc drop in GDP in April also indicates an underlying weakness in Britain's economic growth. The Bank of England's surveys of the private sector show slowing demand across the retail, manufacturing, construction and business services industries. The £25bn raid on employers' National Insurance contributions and the higher minimum wage undermining hiring and reducing pay rises for workers, typically meaning those on more than the minimum wage receive an increase which is between one and two percentage points lower than would otherwise have been the case. Analysts had widely expected only two MPC members to vote for a cut. As a result the scale of the split in the MPC WAS seen by some in financial markets as a dovish signal – that the Bank is likely to keep pressing ahead with rate cuts despite the rise in inflation. Traders were betting there is an 82pc chance of an August rate cut, up from 77pc on Wednesday. It comes after the Federal Reserve held US interest rates at 4.5pc last night, despite intense pressure from Donald Trump, the President, to cut borrowing costs sharply. Norway's central bank today joined the rate cutting cycle, lowering its headline rate to 4.25pc, while Switzerland's returned its interest rate to zero. Policymakers at the Bank of England think there is 'clearer evidence' that Britain's jobs market is loosening, which could pave the way for rate cuts. The Bank has warned that tightness in the labour market was fuelling wage rises, which in turn risks stoking inflation. However, at the latest meeting, the Bank said 'measures of pay growth have continued to moderate'. The MPC said that weakness in job vacancies, payrolls and rise in unemployment rate highlighted 'clearer evidence that a margin of slack had opened up'. Sanjay Raja, Deutsche Bank's chief UK economist, said: 'Something that shouldn't go missed here is how the MPC is framing the labour market story. 'Crucially, the MPC seems to have more confidence around pay disinflation: The growing margin of slack in the labour market pointed to limited pay drift going forward'.' The Bank of England has voted to hold its headline interest rate at 4.25pc. In its latest Monetary Policy Committee meeting, which took place today, members voted for rates to be kept at current levels, a move that was widely anticipated. The UK is grappling with weaker growth, 'sticky' inflation and uncertainty over the effects of ongoing wars, escalating geopolitical tension and the risks posed by President Donald Trump's tariff regime – not to mention how tax rises and job cuts are already affecting the UK economy. However, the assumption seems to be that the Bank of England will still continue to reduce the Bank Rate gradually over the year, with a view to ending 2025 at below 4pc. Here, Telegraph Money explains what the Bank Rate outlook means for your mortgage, savings, pension and investments. The Bank of England sounded more inclined to cut interest rates in the near future, according to economists, despite the decision to keep borrowing costs steady. Capital Economics has forecast reductions in borrowing costs in August, November and February, which would take rates down to 3.5pc. The consultancy's chief UK economist Paul Dales said: 'As the Bank has been cutting rates at every other meeting and it cut rates at the previous meeting in May, rates were never going to be cut today. 'That said, three MPC members (Dhingra, Ramsden and Taylor) voted for an immediate cut to 4pc. 'That compares to the last time rates were held in March when only Dhingra voted for back-to-back rate cuts. 'These three members cited the 'cumulative evidence from a range of labour market data pointed to a material further loosening in labour market conditions', which partly includes the recent weakness in employment.' He added: 'Overall, the risks are that the Bank cuts rates slower in the coming months, but ultimately that rates eventually fall further than 3.5pc.' The pound was unmoved by the Bank of England's latest rate-setting meeting. Sterling was flat against the dollar at $1.342 and was unchanged versus the euro at €1.169. Money markets indicate an interest rate cut in August is more likely despite the Bank of England leaving borrowing costs on hold today. Traders bet there is an 84pc chance that policymakers will cut from 4.25pc to 4pc at the next meeting. The chances stood at 77pc on Wednesday. This would remain in line with the Bank's pattern of reducing rates at every other meeting since it started lowering from a peak of 5.25pc last August. The Bank of England's policymakers noted that 'energy prices have risen owing to an escalation of the conflict in the Middle East' as they kept rates on hold. Oil prices have gone up by around one-quarter to $79 per barrel since the previous meeting in May, at which officials cut interest rates from 4.5pc to 4.25pc. Policymakers pledged to 'remain vigilant about these developments and their potential impact on the UK economy'. However, they argued much of the debate on interest rates was based on domestic conditions: 'Recent global developments had not had a significant impact on this meeting's policy decision.' Officials also noted the 'progress in negotiating trade deals' to limit some of the impact of the tariffs announced by the US authorities in April. Some policymakers also fear the risk from rising food prices, citing sharp rises in the cost of beef, cocoa beans and coffee. This brings the possibility that households, already scarred by the cost of living crisis of 2022 and 2023, may see fresh increases in prices and so demand bigger pay packets - potentially in turn sparking further inflation. 'Inflation persistence could also be generated by higher good prices raising inflation expectations, impacting wage and price setting behaviours,' said the minutes of the MPC's meeting. The Governor of the Bank of England said the world had become 'highly unpredictable' as interest rates were held at 4.25pc. Andrew Bailey said: 'Interest rates remain on a gradual downward path, although we've left them on hold today. 'The world is highly unpredictable. In the UK we are seeing signs of softening in the labour market. 'We will be looking carefully at the extent to which those signs feed through to consumer price inflation.' Interest rate setters were split by six votes to three in favour of keeping interest rates steady. Three members – Swati Dhingra, Dave Ramsden and Alan Taylor – backed a quarter of a point cut to borrowing costs to 4pc. Ms Dhingra and Mr Taylor had backed a half a point reduction at the meeting in May. Interest rates have been held at 4.25pc, the Bank of England has announced. It means the Bank has maintained its pattern of voting to cut rates at every other meeting since it started easing borrowing costs last August, from a peak of 5.25pc. It reduced rates at its previous meeting in May. The cost of government borrowing has edged higher in the lead up to the Bank of England's rate decision. The yield on 10-year UK gilts – a benchmark for the cost of servicing the national debt – has climbed three basis points to 4.52pc today on bond markets. Trading is thinner than usual today as US markets are closed for a public holiday. The Bank of England will warn of near-term uncertainty as a result of US tariffs and the Middle East war, according to one of the City's leading stockbrokers. Peel Hunt chief economist Kallum Pickering expects policymakers to 'emphasise a high degree of uncertainty over the near-term outlook'. He thinks the Bank is 'virtually guaranteed' to keep interest rates on hold and expects the meeting of the Monetary Policy Committee (MPC) to help with 'validating market pricing' for two more interest rate cuts before the end of the year. He said if the Bank of England still uses the wording 'gradual and careful' with regard to rate cuts, this would cement expectations that borrowing costs will be lowered one per quarter. Drama could come from how the members of the vote on the decision, he said. When the Bank cut rates by a quarter of a percentage point in May, Swati Dhingra and Alan Taylor voted for a heavier half a point cuts, while Catherine Mann and Huw Pill voted for no cut at all. 'After a controversial 5-2-2 vote split on the nine-member Monetary Policy Committee (MPC) at the May meeting, there is some uncertainty over how many members may vote for a further cut again at this meeting.' He added: 'Our best guess is that the vote split this time around will be 7-2 for a hold, with doves Dhingra and Taylor backing a further cut of probably 25bp.' UK stocks slipped as the conflict in the Middle East kept investors on edge ahead of the Bank of England's interest rate decision. The benchmark FTSE 100 was down 0.2pc, leaving it about 1pc away from its intra-day record high. Trading is expected to be thin as US markets are shut for a public holiday. White House officials said Donald Trump has approved a plan to attack Iran but has yet to give a final order, raising fears the conflict will escalate. The conflict has pushed up oil prices, with Brent crude up 0.3pc today to nearly $77, helping boost oil giants BP and Shell. Persimmon and United Utilities were at the bottom of the FTSE 100, down 3.3pc and 3.1pc, respectively, as they traded without entitlement to their latest dividend payouts. The FTSE 250 in London fell 0.6pc, with recruiter Hays suffering the heaviest losses of 12.5pc after it warned it would miss profit targets amid sluggish hiring. Revolution Beauty plunged nearly 20pc after billionaire Mike Ashley's Frasers pulled out of the takeover bid for the cosmetics company. Close attention will be paid to the split in voting on the Monetary Policy Committee when the Bank of England announces its interest rate decision later. When the Bank cut rates from 4.5pc to 4.25pc in May, it was only by a margin of 5-4, which markets took as a sign of caution about future reductions in borrowing costs. This was even though two members against a quarter point reduction – Swati Dhingra and Alan Taylor – actually voted for a steeper half a point reduction in rates. Matthew Ryan, an analyst at payments firm Ebury, said: 'We suspect that both Dhingra and Taylor, who opted for a jumbo cut in May, will again vote for an immediate cut, probably of 25 basis points, although 50bp is not out of the question. 'Markets expect the remaining seven members to side in favour of no change, but we wouldn't be overly surprised to see at least one additional dissenting vote in support of looser policy. 'Aside from the voting pattern, market participants will be attentive to the bank's forward guidance. 'For some time now, the Bank of England has stressed that further base rate cuts would be both 'gradual and careful'. 'Given the latest jump in inflation, and the prevalence of the aforementioned upside risks to consumer prices, notably stemming from the conflict in the Middle East, we think that the BoE will maintain this phraseology for now.' Taiwan's central bank left interest rates unchanged amid expectations the AI boom will fuel growth in its economy. The CBC left its main policy rate on hold at 2pc as it revised down its inflation forecast and noted that the economy would grow 'moderately'. Its inflation stood at 1.5pc in May. Taiwan is at risk of US tariffs of 32pc at the end of the 90-day pause of Donald Trump's tariffs, unless it can agree a trade deal with the world's largest economy. Shivaan Tandon of Capital Economics said: 'We don't expect any rate cuts this year is that we think growth will exceed expectations. 'The economy recorded another quarter of rapid growth in Q1, driven by surging exports of AI-related hardware but also thanks to importers front-running tariffs. 'Although the boost from front-running should reverse soon, we think the AI-fuelled growth will continue and should more than offset the drag from tariffs.' In other oil-related news, two of the North Sea's most controversial drilling projects are set to go ahead as Ed Miliband rewrites the rules on carbon emissions. The Energy Secretary is preparing to change the law on Britain's greenhouse gas emissions, which were relied on by a court last autumn to block Equinor's Rosebank oil field, off Shetland, and Shell's Jackdaw gas field, off Aberdeen. Such a move would pave the way for the construction of the giant oil fields, and possibly open the door for more stalled fossil fuel projects in British waters to be restarted. The two North Sea sites, which were once described as 'climate vandalism' by Mr Miliband, were blocked after environmentalists successfully challenged their oil and gas production licences. Shares fell across Britain and Europe in early trading amid the deepening Middle East tensions. The FTSE 100 was down 0.4pc ahead of the Bank of England's next interest rate decision, where policymakers will need to consider the inflation risks of the recent surge in the price of oil. The Cac 40 in Paris was down 0.8pc and the Dax in Frankfurt fell 0.7pc as Israel and Iran's aerial attacks continued. Donald Trump has also kept the world guessing about whether the US would join Israel in air strikes on Tehran. The US president also said that Iranian officials wanted to hold talks, while a Reuters report said that European Union ministers were set to hold nuclear talks with the country on Friday. Meanwhile, the US Federal Reserve on Wednesday held interest rates steady but Chair Jerome Powell said he expects 'meaningful' inflation ahead due to the Trump administration's planned import tariffs. The worst performer on the FTSE 100 was housebuilder Persimmon, down 3.3pc, closely followed by United Utilities. Whitbread was down 2.8pc after the Premier Inn owner reported weak demand in the UK. Norway's central bank surprised markets by announcing a quarter of a point interest rate cut amid the 'uncertain' economic outlook. Norges Bank lowered borrowing costs from 4.5pc to 4.25pc in its first reduction in five years. Analysts had expected rates to remain on hold after inflation rose from 2.5pc to 3pc in May, although this was down from 3.6pc in February. Governor Ida Wolden Bache said: 'Inflation has declined since the monetary policy meeting in March, and the inflation outlook for the coming year indicates lower inflation than previously expected. 'A cautious normalisation of the policy rate will pave the way for inflation to return to target without restricting the economy more than necessary.' The rising price of oil has added another challenge to the Bank of England, economists have warned, as policymakers prepare to announce their next interest rate decision. Oil prices have surged from around $60 a barrel at the start of this month to more than $77 a barrel today over concerns that supplies could be disrupted by the escalating conflict between Israel and Iran. Yael Selfin, chief economist at KPMG UK, said: 'Energy prices have emerged as a key risk to the inflation outlook following the escalation in the Middle East. 'Oil prices have increased by more than 13pc since the start of last week. The immediate impact of this will likely see prices at the fuel pumps rise, reversing the fall in petrol prices motorists were benefitting from recently.' He added: 'The recent movements in energy prices add further uncertainty to an already volatile global economic backdrop. 'This presents another challenge for the Bank of England to navigate and tomorrow's meeting is unlikely to result in a shift from the MPC's cautious approach.' Zara Nokes, an analyst at JP Morgan Asset Management, warned the escalating tensions and the 'upward pressure this is putting on oil prices, will only add to the Bank of England's concern about easing rates too quickly'. She said: 'The Monetary Policy Committee will face a tougher choice when meeting again in August, given the combination of still-sticky inflation and evidence that the labour market is quite clearly cooling. 'A deterioration in the labour market should, in theory, put downward pressure on inflation, but until there are clear signs of this in the hard data, the Bank should be careful not to claim victory over inflation quite yet, not least because of the uncertain geopolitical climate.' The Swiss National Bank cut its interest rate to zero in response to falling inflation and the strengthening of its currency the Swiss franc. The SNB reduced its policy rate from 0.25pc, as had been expected by markets. It was the central bank's sixth rate cut in succession after it started reducing borrowing costs in March 2024. The central bank now stands on the brink of returning to negative interest rates, a policy it maintained from 2014 to 2022 but which was unpopular with banks, savers and insurance companies. Policymakers have been grappling with a surge in the value of the franc this year, which is considered a safe haven in times of economic turmoil. When the franc rises, imported goods become cheaper, having a strong deflationary effect because Switzerland imports a significant share of consumer products. The pound was little changed against the dollar ahead of the Bank of England's interest rate decision. Sterling was trading at around $1.342 after the US Federal Reserve opted to leave borrowing costs unchanged on Wednesday. The dollar has strengthened in recent days amid a surge in demand for safe havens over the conflict between Israel and Iran. Crucially, the Fed left its outlook for interest rates this year unchanged, with its 'dot plot' indicating there will be another two cuts. However, the number of its policymakers predicting there will be no rate reductions rose from four at the last meeting to seven. Seema Shah, of Principal Asset Management said that decision was 'somewhat surprising'. He said: 'Any change in this year's dot plot would have been interpreted as a signal that the Fed has a clear plan about its future policy path, when actually the likely truth is that, with the economic outlook still very much shrouded in uncertainty, the Fed is unsure of how things will pan out.' Stock markets in London fell at the open after the US Federal Reserve downgraded its expectations for growth in the world's largest economy. The FTSE 100 declined 0.4pc to 8,812.95 on its first opportunity to react to the Fed meeting, where US interest rates were kept on hold at 4.25pc to 4.5pc. The mid-cap FTSE 250 dropped 0.6pc to 21,153.85 ahead of the Bank of England's interest rate decision at noon. Thanks for joining me. The Bank of England is widely expected to keep interest rates on hold later today amid global uncertainty and surging food and oil prices. Most economists think the majority of the members of the Monetary Policy Committee (MPC), which sets borrowing costs, will vote to keep the Bank Rate at 4.25pc. The MPC has voted to cut rates at every other meeting since it started easing borrowing costs last August, from a peak of 5.25pc. However, official figures on Wednesday showed inflation remained persistent at 3.4pc in May, which is well above the Bank of England's 2pc target. Food prices surged during the month at the fastest pace since February last year, the data showed, just as the conflict in the Middle East triggered a spike in the price of oil. Meanwhile, policymakers must also consider the potential hit to global growth from Donald Trump's tariff regime and the risks it poses to inflation. Monica George Michail, associate economist for the National Institute of Economic and Social Research (Niesr) said the institute was forecasting inflation to remain above 3pc for the rest of the year amid 'persistent wage growth and the inflationary effects from higher Government spending'. 'Additionally, the current tensions in the Middle East are causing greater economic uncertainty,' she said. 'We therefore expect the Bank of England to keep rates on hold this Thursday and implement just one further cut this year'. Sandra Horsfield, an economist for Investec, added: 'The risk to energy prices has clearly intensified and moved up the agenda given developments in the Middle East. 'It seems unlikely the MPC will want to change policy rates this week.' Here is what you need to know: Labour pledges to close foreign states loophole to ease Telegraph sale | Further legislation promised to block foreign powers secretly teaming up Mike Ashley pulls out of race to buy Revolution Beauty | Frasers billionaire rules out bid as cosmetics brand struggles with sliding sales Iran's weak defences will strike fear into the Kremlin | The rapid collapse of Russian-supplied systems poses a serious problem for Vladimir Putin Waitrose to open first major supermarket in seven years | Store will be based in new town being built on a former airfield in Bristol Jeremy Warner: Reeves's latest U-turn amounts to economic suicide | Britain's steady exodus of millionaires risks becoming a stampede if Labour fails to act fast Asian shares retreated amid ongoing worries about conflict in the Middle East. Ratcheting up tensions, President Donald Trump warned of the possibility of getting directly involved in the conflict with Israel, while Iran's supreme leader rejected U.S. calls for surrender. In Asian trading, Japan's benchmark Nikkei 225 shed 0.9pc to 38,554.98. Shares in Japan's Nippon Steel rose 3pc after it announced that its acquisition of US Steel, which met with American government opposition for more than a year, was finally completed. Hong Kong's Hang Seng dropped 1.8pc to 23,294.85 on heavy selling of tech-related shares, while the Shanghai Composite lost 0.6pc to 3,368.16. Australia's S&P/ASX 200 was little changed at 8,529.60 and in South Korea, the Kospi lost 0.1pc to 2,969.75. US financial markets will be closed Thursday for the Juneteenth holiday. On Wednesday, US stocks drifted to a mixed finish after the Federal Reserve indicated it may cut interest rates twice this year, though it is far from certain about that. On Wall Street, the S&P 500 was flat, at 5,980.87, the Dow Jones dropped 0.1pc, to 42,171.66, and the Nasdaq added 0.1pc, to 19,546.27. In the bond market, the yield on 10-year US Treasury notes dipped to 4.396pc from 4.405pc a day earlier. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
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