In brief

• The Bank of England (BoE) voted to maintain the Bank Rate at 5.25%.


• Inflation has fallen from a peak of 11% in 2022 to 6.7% in September 2023 and is expected to fall further.


• GDP growth expectations were revised lower but upside risks to the inflation outlook were noted.

High enough for long enough

At its November Monetary Policy Committee meeting, the BoE voted to maintain the Bank Rate at 5.25%. The BoE’s Governor Andrew Bailey noted that inflation has fallen, and is expected to fall further this year and next year, while monetary policy is viewed as restrictive. Bailey was also keen to emphasise that there is no room for complacency as inflation remains too high, reiterating that the BoE will keep rates high enough for long enough to make sure inflation falls all the way back to 2%.

The BoE will be watching closely to see if further rate increases are needed, but even if they are not, policymakers believe it is much too early to be thinking about rate cuts. Part of the reason for remaining on hold is that the BoE thinks more than half of the rate hikes in the current cycle are yet to feed through to the economy.

This month’s meeting had a more dovish 6-3 split in favour of remaining on hold as Sarah Breeden, the new deputy governor for financial stability, favoured no hike. Her predecessor, Jon Cunliffe, voted for a 25 basis point rise in September.

Exhibit 1: UK bank rate on hold at 5.25%

Source: J.P. Morgan Asset Management, Bank of England, data as at 2 November 2023.

Growth expected to be weaker

UK GDP is expected to be weaker than projected in the August Report . Some business surveys are pointing to a slight contraction of output in the fourth quarter but others are less pessimistic. The BoE points out that employment growth is likely to have softened over the second half of 2023, and to a greater extent than projected in the August Report. Falling vacancies and surveys indicating an easing of recruitment difficulties also point to a loosening in the labour market.

Exhibit 2: Bank of England modal GDP forecasts (% year-on-year) were revised significantly higher

Source: J.P. Morgan Asset Management, Bank of England, as at 2 November 2023.

Pay growth on the radar but inflation expected to fall

Pay growth has remained high across a range of indicators, although the recent rise in the annual rate of growth of private sector regular average weekly earnings has not been apparent in other series. The BoE noted the uncertainty about the near-term path of pay, but wage growth is nonetheless projected to decline in the coming quarters from these elevated levels.

Twelve-month consumer price index (CPI) inflation fell to 6.7% in September, below expectations in the August Report. This fall was largely due to lower-than-expected core goods price inflation. A further decline in inflation is expected to be accounted for by lower energy, core goods and food price inflation and, beyond January, by some easing in services inflation.

The Monetary Policy Committee continues to judge that the risks to its inflation projection are skewed to the upside. The mean projection for CPI inflation is 2.2% and 1.9% at the two- and three-year horizons, respectively. Conditioned on the alternative assumption of constant interest rates at 5.25%, which is a higher profile than the market expects beyond the second half of 2024, mean CPI inflation would be expected to return to target in two years’ time and fall to 1.6% at the three-year horizon.

Investor implications

Liquidity strategies continue to benefit from the rapid rise in rates over the past couple of years. With the increased conviction that the UK is at peak rates, we believe investors should continue to prioritise a disciplined approach to cash segmentation across both liquidity and ultra-short term cash strategies.

Source for all data is J.P. Morgan Asset Management, as at 2 November 2023, unless otherwise stated.

09hk230611124246

NOT FOR RETAIL DISTRIBUTION: This communication has been prepared exclusively for institutional, wholesale, professional clients and qualified investors only, as defined by local laws and regulations. The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield are not a reliable indicator of current and future results. J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy. This communication is issued by the following entities: In the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission; in Latin America, for intended recipients’ use only, by local J.P. Morgan entities, as the case may be; in Canada, for institutional clients’ use only, by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. In the United Kingdom, by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions, by JPMorgan Asset Management (Europe) S.à r.l. In Asia Pacific (“APAC”), by the following issuing entities and in the respective jurisdictions in which they are primarily regulated: JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, each of which is regulated by the Securities and Futures Commission of Hong Kong; JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; JPMorgan Asset Management (Taiwan) Limited; JPMorgan Asset Management (Japan) Limited, which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia, to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Commonwealth), by JPMorgan Asset Management (Australia) Limited ABN 55143832080) (AFSL 376919). For U.S. only: If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance. Copyright 2023 JPMorgan Chase & Co. All rights reserved.